Smart-Stock.net

Echoing a recent blog-entry from October 13, Warren Buffett praises the ‘American system’ and advises investors to embrace the government’s program for the economy in this clip from Youtube. Buffet’s penultimate advice: “Be greedy when others are fearful…”

Today, in a stunning reversal, Treasury Secretary Henry Paulson said that the government isn’t going to buy all those distressed assets after all! That is bad news for the taxpayers, who will not get the same return on Paulson’s other “investments”. But it’s good news for people who are willing to buy at a time that distressed assets will be going for rock-bottom prices. Don’t take my word for it though, ask the richest man in the world…

How does Buffett feel about investing in distressed assets? It’s a sure bet. Buying distressed assets at distressed prices is a proven method to make money, according to Buffett. The government wouldn’t be spending taxpayer money, says Buffett, but investing it.

Where others see difficulties, Buffett sees opportunity.

“Confidence will come back,” he says. Buffett offers that the American economy has created a seven to one increase in the U.S. standard of living over the last century, despite the difficulties of two world wars, a flu pandemic, and even the Great Depression. Likening the American economy to an athlete who is ‘down but not out,’ Buffett says, “We’ve got all the ingredients for a sensational future.”

Now that the government isn’t buying, you can bet the prices for distressed assets will be lower than ever. If you can find a team with the expertise to filter out the good loans from the bad, you will make a pile of money.

In an interview with cnbc.com, Buffet basically echoes what several high-profile investors are already saying. Namely, that the U.S. Treasury should partner with private investors in the purchase of distressed assets. Buffet predicts that such a move would create real market prices for such assets. Furthermore, he contends that the government can very likely make a profit if it buys these assets at market prices. Ever the man to put his money where his mouth is, Buffet promises to take 1% of the government’s deal.

In his own words: “I think it’s important to have market-based prices. One way to get there would be to have the Treasury, we’ll say, finance various institutions that would put 20 percent of their own money in to buy these mortgage securities that are for sale. The Treasury would lend 80 percent. Whoever put up the 20 percent would not get a dime back until the Treasury got all of its money, plus interest, plus perhaps a share of the profits. You would get real market prices that way. You’d get people that knew the game.”

It’s pretty clear that increased accessibility on the part of investors to the many distressed/toxic accounts (be they mortgage or otherwise) will lead to increased economic activity, as well as to higher returns.