Oracle of Omaha has a busy week

Nancy Marshall-Genzer Dec 28, 2007
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Oracle of Omaha has a busy week

Nancy Marshall-Genzer Dec 28, 2007
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AMY SCOTT: That’s right. Warren Buffett is at it again. Earlier this week we told you he’d bought a big stake in manufacturer Marmon Holdings from Chicago’s Pritzker family.

Now the investing tycoon is launching a bond insurance business. The Berkshire Hathaway Assurance Corporation is expected to open in New York on Monday. The company will act as a safeguard for cities, counties and states. When they sell bonds to raise money for roads and schools they often buy insurance. It makes the bonds more attractive to investors. But the bond insurance business isn’t exactly buzzing at the moment. Could Buffett’s legendary timing be off? Marketplace’s Nancy Marshall Genzer checks it out.


NANCY MARSHALL GENZER: When Warren Buffett does something, the rest of us usually say “Why didn’t I think of that?” But this time he’s entering tricky territory. Bond issuers buy insurance to get lower interest rates. But, interest rates have been quite low over the past five years or so, meaning many governments haven’t bought bond insurance. So why does Buffett want to sell it now?

MARK VITNER: I think it’s absolutely impeccable timing.

Mark Vitner is senior economist at Wachovia. He says the subprime mess is sending people scurrying back to the safety of bond insurance.

VITNER: I think people are paying a lot more attention to the risk and returns on various investments and so we will probably see an increase in demand for it in coming years, particularly with the economy slowing.

That’s good news for the entire bond insurance business. But Buffett has an edge over his competitors. Many of them are tainted, because they dabbled in slippery subprime investments. So is this a case of Buffett the bottom feeder?

BILL BERGMAN: A bottom feeder is one way to put it, for sure.

Bill Bergman is an equity analyst with Morningstar.

BERGMAN: But I think another way to put it is here’s something willing to provide value when very few other people are as willing or as able to do so.

Buffett-backed bonds won’t come cheap. Buffett told the Wall Street Journal he’ll charge more than his competitors. He doesn’t want people to think they can borrow unlimited amounts of money, just because he’s insuring them.

In Washington, I’m Nancy Marshall Genzer for Marketplace.

SCOTT: Buffett didn’t stop with bond insurance. There’s also word he’s buying the reinsurance unit of financial giant ING. The price tag there: About $435 million.

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