SubPrime Bailout Superfund should sell in open market
SubPrime Bailout Superfund should sell in open market
Warren Buffett said today that a $75 billion "superfund" created to buy the assets of troubled investment vehicles should consider selling a portion of those assets in the open market. Doing so would help determine the actual value of the underlying assets, he said. Buffett joins former Federal Reserve Chairman Alan Greenspan and other influential economic thinkers in raising caution about the fund, which was created by Citigroup, Bank of America and JPMorgan Chase with the encouragement of the U.S. Treasury.
Buffett cautious on $75bn superfund
By Anna Fifield
Published: October 25 2007 10:48 | Last updated: October 25 2007 10:48
The US banks creating a $75bn-plus “super fund” to buy the assets of troubled investment vehicles should sell a portion of the fund into the open market to help determine the actual value of the underlying assets, Warren Buffett said on Thursday.
The billionaire investor is the latest in a stream of influential figures – including Alan Greenspan, the former chairman of the Federal Reserve – to question the superfund being promoted by Citigroup, Bank of America and JPMorgan Chase with the encouragement of the US Treasury.
“One of the lessons that investors seem to have to learn over and over again, and will again in the future, is that not only can you not turn a toad into a prince by kissing it, but you can not turn a toad into a prince by repackaging it,” Mr Buffett said during a one-day visit to South Korea
“But very imaginative people in the securities market try to do that. If you have bad mortgages they do not come better by repackaging them. To some extent the chickens are coming home to roost for the mortgage originators and securitisers,” he said.
The superfund would buy assets from cash-strapped structured investment vehicles (SIVs) following the subprime mortgage crisis in the US. The three banks behind the scheme are still thrashing out key details about how the fund will purchase assets and at what price.
Mr Buffett, one of the world’s most successful investors, said the market should set the price.
“I think there should be a requirement that before the securities are put into the new super-SIV, 10 per cent of the holdings should be sold into the market to people who are not associated [with the subprime problem],” he said.
“That way we can be sure that they are being put in at appropriate market prices…They should give the market the opportunity to price the super-SIV themselves so we can see what they are really worth.”
Mr Buffett was speaking in the southern Korean city of Daegu, where he was visiting TaeguTec, an industrial tool manufacturer that is wholly owned by Iscar Metalworking Companies (IMC) of Israel. His Berkshire Hathaway holding company bought an 80 per cent stake in IMC for $4bn last year.
Mr Buffett, who last year sharply reduced his bets on the US dollar again, said his increased exposure to other currencies meant he made $2.3bn on foreign exchange last year and more than $100m so far this year.
“We are still negative on the dollar. We bought stocks in companies that are earning their money in other currencies,” he said, citing Berkshire Hathaway’s investment in Tesco, the British supermarket chain.
“We are gaining through owning businesses that produce earnings in other currencies. We like the fact that Posco earns its money in won,” Mr Buffett said, referring to the South Korean steelmaker in which Berkshire Hathaway has a 4 per cent stake.
“We have benefited to the tune of about $300m simply though the appreciation of the won, as well as through the dividends that we receive in other currencies,” he said.
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posted by Victor Lloyd Smith @ 3:29 PM
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