Warren BuffettAlex Wong
Alice Schroeder, writing for Bloomberg News (via Abnormal Returns), has an interesting column on the business relationship between Warren Buffett and Goldman Sachs Group Inc.
At the depths of the financial crisis, Mr. Buffett bought $5-billion (U.S.) worth of preferred shares from Goldman, which come with a 10 per cent yield. At the time, the deal was heralded as a great move for Mr. Buffett because it gives him $500-million annual cheques - but Ms. Schroeder wonders why Goldman hasn't redeemed the shares now that its fortunes have reversed.
Her theory: Goldman's reputation is in tatters, and so it needs Mr. Buffett's good name. She explains:
"Buffett swapped his reputation at a cheap price. Goldman is holding him to the deal, hanging onto the preferred stock while Buffett's reputation is still useful. It is painful to watch Buffett behaving like a hostage to Wall Street, damaging himself by defending investment banks and saying flattering things about Goldman in a way that contradicts any principled view of the securities business."