Legal Commentary

Does The US Government Have A "Buying Opportunity" In The Financial Sector?

By Big Tent Democrat

Now that Citi and the financial industry are "good investments", another way to look at the current situation is as a "buying opportunity" for the US government. I am largely being facetious here, but here is one description of what the "Oracle from Omaha" said about bank stocks:

[Buffett] says the problem of American banks are not overwhelmingly toxic assets. . . . The problem with the banks is that nobody will trust them and they have not been able to raise funds. The view that this is a liquidity crisis – and not a solvency crisis – has long been a staple of the Bronte Capital blog. . . . Buffett doesn’t even think the US banks (on average) require capital – a view that most people would find startling (though again I think is correct provided appropriate regulatory forbearance is given). . . . [Buffett went] on to repeat that the opportunities in banking are simply wonderful now – so long as you can get past the past.

Buffet is already in deep with Goldman Sachs and GE, but it would be interesting to know why he is not buying banks himself. In any event, the US government is not going to let the financial industry fail for lack of liquidity. The question then is why not make the taxpayers back some money in the process? If "investing" in the financial industry is such a good deal, why would the US government just give away its money for free, instead of getting a piece of the action?

Maybe we can make enough money on this "investment" to pay for the "entitlement crisis?" Or for universal health care? Or "green" investment? Or any number of great ideas that have gone looking for money in the budget? Or even the novel idea of paying down the debt?

I admit I am very skeptical of the claims being made about the financial sector but I know the government can not let it fail. I believe temporary takeovers are going to be necessary to save that sector. But suppose those who think the financial industry has a great upside are right? That there is no "solvency" crisis? That all that is needed is shrewd investors willing to pony up cash now? It turns out that only the US government can and will be that "shrewd investor." Why shouldn't the US government be the one to "make the killing" this time?

Speaking for me only

Full post as published by TalkLeft on March 11, 2009 (boomark / email).