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Oracle of Omaha to the rescue

Dan Grech Feb 12, 2008

Oracle of Omaha to the rescue

Dan Grech Feb 12, 2008


Kai Ryssdal: Warren Buffett has a hand in all kinds of different businesses. Berkshire Hathaway, his holding company, controls Benjamin Moore (the paint makers), Fruit of the Loom (the underwear folks), Sees Candies and — honestly — the Acme Brick Company.

He’s also heavy into insurance and that’s where he sees his opportunities in subprimes.

Today, Buffett offered to reinsure $800 billion worth of municipal bonds.

That’s great news for bond insurers — they’ve been caught up in mortgage-backed securities gone bad — but overall, the offer might not really fix anything. Marketplace’s Dan Grech reports.

Dan Grech: Bond insurers Ambac Financial, MBIA and FGIC are being dragged down by the subprime mortgage mess and they’re looking for a bailout.

Warren Buffett today offered anything but. His firm, Berkshire Hathaway, wants to reinsure municipal bonds, the most profitable slice of the insurance market.

Marilyn Cohen is a bonds money manager.

Marilyn Cohen: Mr. Buffet realizes the crown jewel has always been insuring tax-free municipal bonds, who unto themselves have a very low default rate. I think it’s brilliant.

Wall Street liked it too. Stocks rallied after Buffett’s announcement.

Standard and Poors chief economist David Wyss says Berkshire Hathaway has calmed jittery investors:

David Wyss: The bond insurance is important because people want more assurance that somebody stands behind them that they know and they know Berkshire Hathaway.

Wyss says Buffett smells opportunity. Berkshire Hathaway just opened its own municipal bond insurer.

Wyss: Warren Buffett sees this very clearly as a cheap way to get that insurance company off to a flying start.

Buffett told CNBC today he’s no white knight.

Warren Buffett: When I go to Saint Peter, I will not present this as some act that should entitle me to get in. No, we’re doing this for money. I did not dream this up in one of my pro-bono moments.

Buffett, in fact, has been rebuffed so far by the big three bond insurers. One turned down his offer and there’s been no response from the other two.

I’m Dan Grech for Marketplace.

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