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Warren Buffett: Treasury Should Team With Private Investors to Buy Distressed Assets

Thursday, 2 Oct 2008 | 7:09 PM ET

Warren Buffett suggests today (Thursday) that the U.S. Treasury should partner with private investors when it buys the "toxic" assets that are bringing global credit markets to a standstill, as a way to generate real market prices for those assets.

That's assuming, of course, that the House of Representatives will approve the modified 'bailout' bill when it votes tomorrow.

Fortune/CNNMoney.com reports that Buffett came up with the idea this morning as he traveled to Carlsbad, California for an appearance at Fortune's Most Powerful Women Summit.

In a video interview with Poppy Harlow, Buffett explains the concept:

"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. You get people administering, even, the program, in a sense, that bought these mortgages and would care a lot, because the Treasury would have to get all of its money back, its 80 cents, before they got their 20 cents. And the Treasury could participate in the profits. It's just a thought to get market-based pricing into the system and get some other people with skin in the game that will lose money if for any reason the Treasury - In fact they'll lose all their money, before the Treasury loses a dime."

Buffett has predicted the government has a good chance of making a profit on the bailout if it buys the toxic assets at market prices. Yesterday, he told us he'd be willing to take one percent of the government's deal.

Sounds like he's come up with an idea that would let him, and others, follow through on that offer.

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Questions? Comments? Email me at buffettwatch@cnbc.com

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