Warren Buffett – Ultimate Hard Money Lender

From Seeking Alpha by Don Dion

The name Goldman Sachs (GS) has been one of the premiere names in investment banking in America since the 1800s. However, its sterling reputation did not prevent the company from being invlved in the sub-prime mortgage crisis that threatened to sink the global economy. Goldman was bailed out by the U.S. taxpayers and Warren Buffett, founder of investment firm Berkshire Hathaway (BRK.A, BRK.B). These two great names in American investing came together at a critical time in history to produce a partnership that helped to stabilize one and enrich the other.

The origins of Goldman's problems began in 2006 and 2007 when the credit default swap frenzy created the meltdown in the American housing market. Questions about the company misleading homeowners and setting up the conditions to allow mortgages to fail swirled through the financial industry. Top executives and shareholders began to sell off their stock dropping prices to historic levels. Trouble spread to the company's dealing in the United Kingdom as well, and it became clear that the company was teetering on the brink of collapse.

In the midst of the financial maelstrom of 2008, Goldman Sachs was in the eye of the storm with a variety of fiscal woes that caused them to teeter on the edge. Warren Buffett stepped in as the ultimate hard money lender to offer the company a $5 billion dollar loan at 10 percent interest plus kickers to get the company back on steady footing. This money helped Goldman to restore stability to its accounts and reputation. It could be argued that the confidence that Buffett showed in the company also played a part in helping it to weather its fiscal storms. Goldman repaid the loan in 2011, leaving other conditions in place until a later period.


Posted in Hard Money