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News Link • Economy - Economics USA

Yves Smith: On the Buffett Purchase of BofA Preferred

The bulls’ hope is that BofA will have enough time to earn its way out of this mess. But if a Eurocrisis hits, and this looks like a sooner rather than later event, investors will avoid risk first and think critically later. The real determinant is whether this gambit does much to bring in Bank of America’s CDS spreads, which were trading at higher-than-Lehman-before-its-failure levels. The enthusiasm for this move seems to be fading a tad. The stock was up nearly 12% when I started this post and it is now up only 7.7-8.0% (oh, now back up to up 9%). Admittedly, some of the rally yesterday may have been due to a leak of this investment. And don’t kid yourself: if there is any rescue of BofA, just as with the Goldman TARP infusion, the public will get a worse deal than the Sage of Omaha just extracted.

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