Friday, November 30, 2007

Warren Buffet on The Entity (M-LEC, Super-SIV, Super-Conduit, Whatever)

Let's talk clearing price.

From The Financial Times:

...“One of the lessons that investors seem to have to learn over and over again, and will again in the future, is that not only can you not turn a toad into a prince by kissing it, but you cannot turn a toad into a prince by repackaging it,” Mr Buffett said during a visit to South Korea

“But very imaginative people in the securities market try to do that. If you have bad mortgages they do not come better by repackaging them. To some extent the chickens are coming home to roost for the mortgage originators and securitisers,” he said.

The proposed superfund would buy assets from cash-strapped structured investment vehicles (SIVs) following the subprime mortgage crisis in the US.

Mr Buffett, one of the world’s most successful investors, said the market should set the price.

“I think there should be a requirement that before the securities are put into the new super-SIV, 10 per cent of the holdings should be sold into the market to people who are not associated [with the subprime problem],” he said.

“That way we can be sure that they are being put in at appropriate market prices . . . They should give the market the opportunity to price the super-SIV themselves so we can see what they are really worth.”