A Very Expensive Berkshire/Goldman Deal

If you missed last night’s discussion on the "vote of confidence" deal from Warren Buffett, you are missing the big picture. Go read:  Berkshire to GS: "I Got $5 Billion, but Its Gonna Cost Ya."

The headline writers of both the NYT and the WSJ missed the numbers involved:

NYT: Buffett Deal at Goldman Is Seen as a Sign of Confidence

WSJ:  Move by Famed Investor’s Is Seen as a Vote of Confidence in Crisis-Stricken Banking System

Doug Kass goes last night’s analysis one better, and notes that using a Black Scholes produces a valuation of $2.8 billion dollars for the warrants. That makes the effective yield over 20% on the preferred purchase.

As we noted last night, this is terrific for Buffett, who smelled blood in the water. Its a tough deal for Goldman, who were a) obviously in a bind for capital; and 2) smart enough to learn from Lehman Brothers mistakes.

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