Warren Buffett's voice rises above din of credit crisis

Steve Jordon
Omaha World-Herald (MCT)

OMAHA, Neb. -- Historians who write about the Panic of '08 will cite one business leader who seized decision-makers' attention and focused it on a solution.

That's Warren Buffett, who has invested thousands of words and billions of dollars over the past three weeks during the unfolding of a credit crisis that he believes threatens millions of Americans' jobs.

His company, Berkshire Hathaway Inc., also stands to profit from a series of multibillion-dollar transactions that came up because of the credit crisis.

House Majority Leader Steny Hoyer, D-Md., invoked Buffett by name in his final appeal for the rescue measure moments before Congress' approval Friday, citing Buffett's confidence that the bailout could end up turning a profit for taxpayers.

Buffett was one of the first experts contacted about the problem by Democratic presidential candidate Barack Obama, whom Buffett supports. Buffett also talked with Republican political leaders.

"I guess we're all using Warren," said Sen. Ben Nelson, D-Neb., one of many leaders who spoke with Buffett during the days leading up Friday's vote.

Besides elected officials, Buffett reportedly is in close contact with Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke. The two initiated the rescue plan, and Buffett was quick to endorse it and praise Paulson.

Buffett doesn't tell other people what to do but rather acts as an adviser, said David Sokol, a top executive at Berkshire.

"If they have a question he'll help them work through the answer," Sokol said. "He's more of a teacher.

"We've been talking to every congressman, House member and Senate (member) that will listen to us. He has the most competent financial mind in the world, and people would be foolish not to listen to his words of wisdom on this issue."

That's especially true, Sokol said, when the issues are so complex that even well-informed people have difficulty understanding what needs to be done and what inaction might cause.

Buffett's words weren't magical. He spoke publicly in favor of the original Paulson-Bernanke plan before the House voted that down Monday and the Senate amended the proposal substantially to gain support.

Nelson said Buffett explained the plan's financial aspects, but elected officials had to deal with the political reality of a proposal that drew heated opposition from voters.

Anthony Henderson, business dean at Creighton University in Omaha, said Buffett's credibility is the key.

"That conservative, long-term, seasoned, fundamental kind of approach is what the market's clamoring for, and Warren has done a great job of that," Henderson said. "He provides that grandfatherly advice from middle America."

People trust that Buffett understands complex financial situations and yet forms his opinions through sensible reasoning, Henderson said. "It's not because of a lot of sophisticated financial gimmickry. It's about fundamentals."

Buffett has done more than talk.

His investments, through Omaha-based Berkshire, have been especially large and rapid, fitting his pattern of acting decisively when financial conditions are ripe.

The tally, so far, of Buffett's transactions related to the credit crisis:

_Baltimore, Md., utility Constellation Energy, $4.7 billion purchase and $1 billion investment.

_Investment bank Goldman Sachs, investing $5 billion now and possibly $5 billion later.

_Industrial giant General Electric, investing $3 billion now and possibly $3 billion later.

That's a total of as much as $21.7 billion, or about half the cash Berkshire has accumulated over the past several years.

Berkshire also is the largest shareholder of Wells Fargo & Co. stock, which agreed to purchase Wachovia, a giant bank that failed because of credit problems, for $15.4 billion.

Buffett also has said he is interested in buying parts of American International Group, the big insurer that received a federal bailout. Such a deal also could be in the billions.

In each case, Berkshire stands to make a substantial profit, especially if the rescue plan works.

With Goldman Sachs and Constellation, for example, Berkshire would receive annual dividends of 10 percent, even if ordinary shareholders get no dividends. The price Berkshire is paying for Constellation is less than half of what the company was worth a few months ago.

Just the announcement of Wells Fargo's planned Wachovia purchase brought Berkshire a paper gain of more than $500 million in the value of its Wells Fargo shares. Buffett endorsed the purchase Friday and said he has been buying more Wells Fargo stock to boost Berkshire's 9 percent stake.

"This is not charity," said Robert Bruner, graduate business dean at the University of Virginia and co-author of a new book on economic crises. "This is tough-minded business. But this is what lends weight to the signals imbedded in his actions.

"If he were doing it for charitable purposes, we would have less confidence that it may be an inflection point. Because he's committing the capital of Berkshire Hathaway, and very large amounts of capital, I may add, it strongly suggests that Buffett thinks these companies have hit a buying point."

Bruner said economic panic -- and the nation is in the midst of one, he said -- requires cool-thinking leaders.

His book, "Panic of 1907," recounts the role of financiers J.P. Morgan, John D. Rockefeller and others in settling financial crises of the past.

"Warren Buffett fits into a long line of prominent business figures who bring a sense of meaning to the event," Bruner said. "There are a lot of people offering a lot of opinions these days. Warren is one of those people who can command attention well above the din of the battle."

To be sure, Buffett's investments in Goldman Sachs and General Electric could have suffered had Congress not acted.

But if Buffett's only goal were maximum profits, he could have waited for the crisis to deepen and more companies to fall into financial trouble, Sokol said.

"More opportunities would have presented themselves for Berkshire had this stabilization plan not happened," Sokol said. "Companies would have run out of capital. Warren obviously cares more about his country than self-interest."

Buffett also appealed directly to the public, a majority of whom, at least initially, opposed using tax funds to buy financial institutions' bad debt. He appeared on national television three times in the past few weeks. His office said he was "swamped" with interview requests.

People need the right information to make good decisions, but they don't have time to carefully study the U.S. financial structure, said Roger Butters, president of the Nebraska Council on Economic Education and an economist at the University of Nebraska-Lincoln.

Buffett leads not only by explaining the situation "but also by literally putting his money where his mouth is," Butters said. "People do follow what he says."

On Wednesday night, Buffett said on Charlie Rose's PBS talk show that 3 million people could lose their jobs if Congress didn't act. Even if the rescue plan works, Buffett said, he expects a recession.

But in the long run, he told Rose, the U.S. economy has a bright future and is the best in the world because it frees people's potential.

Commenting on CNBC after the House vote on Friday, Buffett said the rescue plan is "no panacea" but would avert a much worse recession.

Bruner, the Virginia professor, said such reassurance helps calm people.

When the situation is dire, he said, "the panic calls for cooler heads than currently prevail, and he's showing leadership and attempting to convey a view of the developments that would be rational and consistent with the facts.

"What he can do is help create an atmosphere around which reasonable people can have a conversation. The people who most need to have a conversation are in the halls of Congress and the corridors of the financial community."

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