Professor Buffett tutors Goldman Sachs

Warren Buffett helps Goldman out by participating in a $500 million philanthropic plan for small businesses.

By TheStreet Staff Nov 20, 2009 12:00PM

TheStreet.comBy Don Dion, TheStreet.com

 

Lloyd Blankfein and his firm appear to have taken to heart his controversial statement that Goldman Sachs (GS) is doing God's work.

 

In what appears to be a sign of atonement for past sins, Goldman has enlisted the help of Warren Buffett to help prove to the American people that it deserved the billions in bailout money it received during its darkest days. It hopes to achieve this goal through a philanthropic effort aimed at assisting small businesses.

 

While this was a surprise move from Goldman, Buffett watchers know that the financier is no stranger to philanthropy. His own charitable organization, the Susan Thompson Buffett Foundation, which assists college bound students across Nebraska, has raised billions of dollars in assets.

The investor's most famous charitable act occurred more than three years ago when he announced he would donate 83% of his fortune to the Bill and Melinda Gates Foundation. Additionally, Buffett has auctioned off cars and lunches in an effort to raise money for different organizations.

 

On the surface, this latest plan appears virtuous. However, it is likely that the new initiative will generate a nice profit for Goldman Sachs and Professor Buffett.

 

This is not the first time Buffett has come to the aid of Goldman Sachs. Last year, in the middle of the financial meltdown that claimed Bear Stearns and Lehman and left Bank of America (BAC) gasping for air, Goldman desperately turned to the Oracle for relief.

 

The company offered to sell Buffett's Berkshire Hathaway $5 billion in preferred shares with warrants paying 10% interest. Buffett bought in and has since earned more than $2 billion in profit.

 

Today, thanks to both Buffett, and the billions of dollars from the taxpayer's bailout, Goldman Sachs holds the throne as the reigning king of Wall Street. Recently, the firm has returned to announcing strong earnings and setting aside large bonus pools for its employees.

 

While the bank-holding company is riding high, the rest of the U.S. economy can’t say the same. With rising debt and high levels of unemployment, the taxpayers who saved Goldman continue to suffer from the mess the firm helped create. Needless to say, many taxpayers have responded with anger, questioning whether Goldman was worthy of their help in the first place.

 

This week, Blankfein showed his empathetic side by issuing an apology on behalf of the financial giant. At a New York corporate conference, the CEO told listeners that Goldman regretted taking part in the cheap credit boom that helped fuel the pre-crisis bubble.

 

He then turned the focus onto Goldman Sachs' newest venture: a program to help small businesses. Co-chairing the "10,000 Small Businesses" initiative would be none other than Buffett.

 

The "10,000 Small Businesses" program aims to provide small firms in the United States access to capital, education and networking opportunities to help them boost productivity and get back on their feet.

 

Goldman has pledged $500 million toward the cause. Blankfein, Buffett and Michael Porter of Harvard Business School will oversee the program as members of its advisory council.

 

While, it appears to be a sign of goodwill, Buffett and Goldman will likely see a boost from the program.

 

Buffett, who has consistently remained bullish on the U.S. economy, sees small business owners as a necessary component of growth. Domestic growth will lead to big gains for Berkshire Hathaway and its affiliates.

 

For Goldman, the program couldn't have come at a better time. Although Blankfein insisted that the decision to launch "10,000 Small Businesses" was not motivated by the controversy surrounding Goldman Sachs, one can't help but look at the timing. With anti-Goldman sentiment mounting and CIT in the throes of bankruptcy, Goldman has a golden opportunity to improve its public image while expanding in small-business lending.

 

It would be in Goldman’s best interest to ignore the bottom line for a while and focus on helping the people who helped them. The $500 million and Buffett's blessing are a good start, but it's going to take results, rather than an apology, a pile of cash and a press release, to regain the public's respect.

 

Don Dion, president of Dion Money Management, is a regular contributor to TheStreet.com.

 

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Why we trust Warren Buffett

 

 

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