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Jan 9 / Jonathan

TARP: Giving Money Away

Mark Pittman at Bloomberg.

Paulson Bailout Didn’t Give Taxpayers Buffett’s Terms

Henry PaulsonHenry Paulson may be the most powerful manager of money in the world and he still couldn’t do for taxpayers with the $700 billion bailout of American banks what Warren Buffett did for his shareholders in investing in Goldman Sachs Group Inc.

The Treasury secretary has made 174 purchases of banks’ preferred shares that include certificates to buy stock at a later date. He invested $10 billion in Goldman Sachs in October, twice as much as Buffett did the month before, yet gained warrants worth one-fourth as much as the billionaire, according to data compiled by Bloomberg. The Goldman Sachs terms were repeated in most of the other bank bailouts.

Paulson’s warrant deals may give U.S. taxpayers, who are funding the bailouts, less profit from any recovery in financial stocks than shareholders such as Goldman Sachs Chief Executive Officer Lloyd Blankfein and Saudi Arabian Prince Alwaleed bin Talal, owner of 4 percent of Citigroup Inc., said Simon Johnson, former chief economist for the International Monetary Fund.

The transactions are “just egregious,” said Johnson, a fellow at the Peterson Institute for International Economics in Washington. “You want to do it the way Warren does it.”

Paulson’s decisions mark the first time in the nation’s 236- year history that the U.S. government has had to prop up the financial system by purchasing shares in institutions from Goldman Sachs, the most profitable Wall Street firm last year, to Saigon National Bank, a Westminster, California, lender with a market value of $3.8 million.

via Barry Ritholtz

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