This Sucker Will Go Down

“If money doesn’t loosen up, this sucker will go down.”
–George W. Bush

“I believe this was the greatest economic statement of all time.”
–Warren Buffett

A few weeks ago, Warren Buffett paid former President George W. Bush a high complement by heaping accolades on a typical Bushism,^[1] “If money doesn’t loosen up, this sucker will go down.”^[2]

Bush was commenting on the financial crisis that emerged in September, 2008 immediately after the failure of Lehman Brothers, a crisis described by Buffett as “a great silent electronic run on money markets.” Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson were using every tool at their command, plus some new ones they convinced Congress to enact, to restore liquidity in the financial markets and calm panic.

The Bernanke-Paulson game plan was classic central bank therapy for a financial system on the verge of collapse: provide liquidity to the markets by lending on good credit.^[3] Buffett helped out a little (for a price) by buying convertible preferred stock from General Electric and Goldman Sachs, who were both short of cash. Bush resolutely backed his managers, Bernanke and Paulson, thereby earning Buffett’s praise, and likely inducing the Buffett “rescue” of GE and Goldman and thousands of other rescues of which there is no full accounting.

More than five years after the beginning of the Great Recession, views of what happened are maturing and sounder judgments of the causes, effects and ultimate resolution of the crisis can be made.

As investment bankers active in middle market corporate restructurings, restoring liquidity to businesses is at the heart of what Porter, White & Company does in this challenging field. Absent access to liquidity, companies do indeed, as President Bush put it, “go down.”