Reuters / Jim Young
- Warren Buffett called Treasury Secretary Hank Paulson at the height of the 2008 financial crisis with a suggestion that would likely save the US economy from a deeper recession.
- The famous investor and CEO of Berkshire Hathaway suggested that the government inject capital directly into banks rather than just buying its distressed assets.
- Paulson quickly assembled the heads of the nation’s largest banks and convinced them to accept billions of dollars in investments.
- The Treasury required huge dividend payouts, as well as stock orders in return, simulating Buffett’s bailout for Goldman Sachs in September 2008.
- Former President George W. Bush called it “perhaps the greatest financial bailout ever” and said it “may have saved the recession.”
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Warren Buffett made a late-night phone call on Saturday, October 11, 2008, and it was likely to have spared the United States a more devastating financial crisis.
The couple said the billionaire investor and CEO of Berkshire Hathaway called then Treasury Secretary Hank Paulson. Panic: The Untold Story of the 2008 Financial Crisis, Documentary film released in 2018.
Buffett said, “Hank, this is Warren.” Paulson’s first thought was tired and groggy was, “My mom has such a handy guy named Warren, why would he call me?”
Buffett was calling about the Troubled Asset Relief Program (TARP), which allowed the Treasury to spend $ 700 billion buying troubled assets from banks. It was passed by lawmakers in a desperate effort to shore up the financial system after the collapse of Wachovia and Washington Mutual – two of the greatest bank failures in American history.
Once Paulson realizes Buffett is at stake, the Berkshire boss suggested that the government invest directly in banks rather than just buying its assets, as it would likely “do well” using this approach.
“He brought up the idea that was the core of what we did,” Paulson said in the documentary.
Paulson gathered the heads of the nation’s major banks the following Monday. He convinced them to accept billions in government money, threatening to cut off future aid if they refused to receive it.
The Treasury ultimately invested the money in more than 700 financial institutions as part of Capital Purchase Program. In return, you receive preferred dividends or debt securities.
It also secured guarantees that enable it to buy companies’ shares at a fixed price in the future, and took some of the rally from its recovery in exchange for risking taxpayer money.
The deals were at least partly Similar to Buffett’s bailout From Goldman Sachs a few weeks ago. The investor The bank delivered $ 5 billion In exchange for preference shares that pay a 10% annual dividend plus stock guarantees.
Former President George W. Bush hailed the banking program as “perhaps the greatest financial bailout ever” in the documentary, adding that it “may have saved the recession.”
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