- Warren Buffett phoned Treasury Secretary Hank Paulson at the height of the 2008 financial crisis with a suggestion that probably saved the US economy from an even deeper recession.
- The famous investor and CEO of Berkshire Hathaway has proposed that the government invest the capital directly in banks instead of buying only their troubled assets.
- Paulson quickly gathered the heads of the nation̵
- The Treasury demanded that preferred stock pay large dividends, as well as warrants in return, emulating Goldman Sachs’ Buffett bailout in September 2008.
- Former President George W. Bush called it “probably the biggest financial bailout ever” and said it “probably saved a depression.”
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Warren Buffett made a late night phone call on Saturday, October 11, 2008 that likely spared the United States from an even more devastating financial crisis.
Billionaire investor and CEO of Berkshire Hathaway called then Treasury Secretary Hank Paulson, the couple said in “Panic: The Untold Story of the 2008 Financial Crisis,” a documentary released in 2018.
“Hank, this is Warren,” Buffett said. Paulson’s first thought, tired and groggy, was, “My mom has a handyman named Warren, why is she calling me?”
Buffett called the Troubled Asset Relief Program (TARP), which authorized the Treasury to spend $ 700 billion to buy distressed assets from banks. Lawmakers approved it in a desperate attempt to bolster the financial system after the collapse of Wachovia and Washington Mutual, two of the largest bank failures in American history.
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Once Paulson realized Buffett was at stake, the Berkshire boss suggested that the government invest directly in the banks instead of just buying their assets, as he would probably “have done very well” using this approach.
“He exposed the idea that he was the germ of what we did,” Paulson said in the documentary.
Paulson brought together the heads of the nation’s largest banks the following Monday. He persuaded them to accept billions in government cash, threatening to withhold future aid if they refused to take it.
Finally, the Treasury has invested funds in more than 700 financial institutions under the capital purchase program. In return, he received preferred stock that paid a healthy dividend or debt securities.
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It also secured warrants that allowed it to purchase company shares in the future for a fixed price, capturing part of the upside from their recovery in exchange for the risk of taxpayers’ money.
The deals were at least partly modeled on Buffett’s bailout of Goldman Sachs a few weeks earlier. The investor delivered $ 5 billion to the bank in exchange for preferred stock by paying an annual 10% dividend and warrants.
Former President George W. Bush praised the banking program as “arguably the biggest financial bailout ever” in the documentary, adding that it “probably saved a depression.”
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