In order to counter the verbal drooling on Bubblevision regarding Buffett's $5 billion investment on Bank of America (BAC), here is my 2 cents. First, they raised very expensive capital when they said they didn't need to. Second, the $5 billion deal doesn't save the bank or the industry. Add a "0" to the number and the bank is good, but this is chicken feed. As for recapitalizing the industry, it's a joke. Ha ha.
Third, Buffett has not done particularly well with his recent preferred deal injections at Goldman (GS) or GE (GE). Just look at those share prices since the deal. And this in a raging bull market! Fourth, Buffett has made little money in bank stocks for a very long time. It's not like the guy has the Midas touch with financial stocks. That's right, the biggest single beneficiary of the government bailouts of the banking industry has not been able to make a buck in the shares, even with billions of free money from taxpayers -- i.e., you and me.
Despite my bearishness for bank stocks over the past four years, I predicted a dead-cat bounce here a few days ago. I even toyed with a BofA long rental when the talking heads brought up the Berkshire idea of a capital injection. I think Buffett has a TV in his bathroom and got the idea from CNBC yesterday morning.
Too bad I didn't take my own advice.
So little was really accomplished with this BofA sweetheart deal regarding fixing the banking industry. Yet, listening to CNBC, one would think His Almighty came down from the heavens and blessed the entire space. Buffett may or not may make money on this. I think he might, but his record with banks -- and rescue deals in general -- is not good. However, as far as fixing the structural problems that plague the entire banking industry, well, this deal is like tossing a cup of water into a swimming pool. Treat it as such.
