Tuesday, September 9, 2008

Jim Rogers and Warren Buffett at Odds on Fannie/Freddie Bailout (FNM; FRE)

Fresh from their recent solo appearances in "Jim Rogers: How the Federal Reserve Will Fail (As in BANK FAILURE)" and "Warren Buffett, Mr. Market and the Buffett Partnership Letters, 1959-1969 (BRK.A)" respectively, we bring a couple heavyweights together. From Money Morning (Australia):

Few analysts have abstained from voicing an opinion about the U.S. government’s plan to seize control of Fannie Mae (FNM) and Freddie Mac (FRE), the nation’s embattled mortgage behemoths, and that include such eminent investors as Jim Rogers and Warren Buffett. Of course, two of the world’s greatest financial analysts have very two very different perspectives.

"It is socialism for the rich," Rogers said yesterday (Monday) during an interview with CNBC Europe, "It’s just bailing out financial institutions."...

...The Treasury will also make secured loans to the companies if needed and even buy some mortgage-backed securities itself.

This is the biggest point of contention, as it puts taxpayer money at risk while at the same time boosting the value of Fannie and Freddie’s mortgage backed securities and bonds.

"This is madness, this is insanity, they have more than doubled the American national debt in one weekend for a bunch of crooks and incompetents," Rogers said. "I’m not quite sure why I or anybody else should be paying for this."...

...Of course, the Oracle of Omaha sees things differently. He praised the plan as a wise move for Treasury Secretary Paulson, who Buffett said "did exactly the right thing."

"I wouldn’t change anything in the plan myself," Buffett said in his own interview with CNBC. "It’s the best deal and the most sensible deal available now."

While he admitted the Treasury is officially "on the hook" for the depth of the housing downturn, Buffett argued that the government had no choice but to bail out Fannie and Freddie.

"Whatever they lose from this plan, if they hadn’t acted there were going to be greater losses down the road," Buffett said. He also pointed out that the arrangement between the two insurers and the Federal government, from the point of inception, is truly to blame for current troubles and nothing can be done now to erase that....Read it ALL