A rich man for all seasons

Multibillionaire Warren Buffett may sound cuddly, but he’s talking from both sides of his mouth

August was a typical month for Warren Buffett, America’s second richest man. While the leisure classes lolled, he called for higher tax rates for the rich. If America had a debt problem, he wrote in the New York Times, it was high time the rich paid a greater share of their earnings to the government.

Then, two weeks later, he sank his fangs into the fleshy rump of Bank of America, one of the bailed-out giants still staggering three years since the start of the financial crisis. Buffett had been circling Bank of America for a while, hoping that its problems would force it into his arms. It was simply a question of when not if they would have to take his money.

By the time they succumbed, it was on typically usurious terms. In return for his $5 billion investment in preferred stock, Bank of America agreed to pay Buffet a fixed dividend of 6 per cent on the stock and to pay a 5 per cent premium whenever they needed to buy it back. It also granted Buffett warrants to buy 700 million shares in the company at a low exercise price, which will almost certainly earn him another large return. Buffett can extract these terms for two reasons: he has cash when most of the world does not; and his investment is the single best seal of approval any struggling company could want.

At the depths of the financial crisis, he poured money into Goldman Sachs and General Electric, propping them up at their moments of greatest woe. And not only did he earn a substantial financial return, he was called a patriot for investing in America when the world was running scared — or, as value investors call it, at the bottom of the market.