When we read about the Robber Barons like Carnegie and Rockefeller in high school, the tone was one of amazement and marvel at the crude old days when individuals amassed such wealth that a single man’s morning attack of bursitis could shift the tectonic plates of the U.S. economy. Well, guess what, them times are back, whoopee. Warren Buffett has now come to the single-handed rescue of Bank of America, an entity whose managers swore just 24 hours before that it did not need any such help. Shades of 2007! Recall how often you heard, ‘Everything is/will be just fine’ back then, right before the business-political complex had a massive panic attack.
Buffett bought $5 billion worth of preferred shares in the ‘perfectly solvent’ second-largest bank of the land and got a lucrative deal on another piece of business called warrants, which he can cash in later. But whether or not he makes money on paper is pretty irrelevant, even to a guy who sits atop a pile of gold that Scrooge McDuck couldn’t even fantasize about. If BOFA goes down, Buffett knows that the U.S. government will ride to his rescue a la TARP, which saved Buffett’s investment in Goldman Sachs. So let’s not fall into the wise-old-Warren camp and rush down to buy a few shares.
Meanwhile, will Buffett’s billions save us from the next banking crisis? Nobody, and I mean nobody knows.