Uncle Sam, the World’s Worst Trader

A few months ago, I did a WSJ panel with Jon Najarian in Chicago. He’s a nice guy, a canny options trader, and the founder of Option Monster.com. (He and his twin bro are regular panelists on Fast Money).

As a trader, Jon points out what a horrific deal the taxpayers got for their bailout “investments.” Warren Buffett bought into Goldman Sachs about the saame time as Uncle Sam did. The difference is in the terms and the returns: Buffett earned 120% on his money, while Hank Paulson, on behalf of the taxpayers, picked a paltry the 23%.

Here are the details:

“The federal government let the trade of the century slip through its fingers at the depths of the financial crisis. Worse, Warren Buffett had already drawn up the perfect blueprint, in steps so easy even a Treasury secretary could follow. Doesn’t that make the government a candidate for worst trader of all time?

Long before his acquisition of the Burlington Northern Santa Fe (ticker: BNI) railroad, the Oracle of Omaha agreed, on Sept. 23, 2008, to invest $5 billion in Goldman Sachs (GS) through a purchase of perpetual preferred stock. The shrewd chairman and CEO of Berkshire Hathaway also got warrants to buy up to $5 billion of Goldman common shares at $115 each, some 8% below where the stock was trading at the time.

In a single bold stroke, when Goldman and the global markets needed it most, Buffett put his money and reputation on the line. He stood to own roughly 10% of the bank, and his convertible shares also pay a fat 10% dividend.

Yet even with this trade serving as a very public model, what did then-Treasury Secretary Hank Paulson ask for? When the Wall Street giants had their backs to the wall, he gave them billions of our taxpayer dollars for a relative pittance . . .

Great stuff — thanks Jon!


The World’s Worst Trader?
Barron’s NOVEMBER 16, 2009

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