A point-counterpoint on Goldman Sachs' decision to strike this deal with Warren Buffett. 

SWINDLE:

The markets were without form, and void; and darkness was upon the face of the deep. And Warren Buffett said, let there be light. And the market saw that it was good.
 
Warren Buffett is without question a very savvy investor, and his investment in Goldman Sachs is on paper a very attractive one for his company, Berkshire Hathaway, and probably a necessary one for Goldman.
 
But is this stake in Goldman really something to celebrate?  Investors who have long been waiting for Buffett to wade into the credit mess (remember those rumors of interest in Bear Stearns and later, American International Group?) are deifying someone without much of a track record on Wall Street.
 
Stock index futures rallied earlier this morning on the news, and CNBC provided the morning hagiography.
 
If any other investor, says Sumitomo Mitsui Financial, had made the same kind of investment in Goldman—and according to Japanese newspapers, it may yet—the reaction would have been very different. It would have been seen as how the credit crisis has deepened to the point where even the golden child of Wall Street, Goldman Sachs, needs to scramble desperately and offer expensive terms in order to attract new capital.
 
Does Saint Warren know something about the credit crisis that others do not? Not likely. Yes, he saved Salomon Brothers, but the experience was "far from fun" he later acknowledged.
 
And Buffett's investment hinges on a bit of a gamble.
 
He told CNBC this morning that if he did not think that the government would establish a program to buy troubled mortgage assets, he would not have made his investment in Goldman.
 
"It would be a mistake to buy anything if the government were to walk away," Buffett said.
 
The Paulson bailout plan, he said, "is absolutely necessary to avoid going over the precipice."
 
Saint Warren may want to render unto Caesar what is Caesar's, but he probably should have paid more attention to the Senate Banking Committee hearing on Tuesday as he was negotiating terms. Opposition to a bailout is clearly growing in Congress.
 
Saint Warren is buying $5 billion worth of Goldman's perpetual preferred stock. This stock pays a 10 percent dividend and is callable at any time at a 10 percent premium.
 
Barry Ritholtz on the Big Picture calls this a very expensive deal, noting that the dividend, some $500 million per year, "gets paid out of net income in after-tax dollars. Ouch."
 
Saint Warren also receives warrants that give the right to buy $5 billion of Goldman's common shares at $115 per share over the next five years. That is 8 percent below Tuesday's closing price, and 37 percent below where Goldman's shares were trading at the start of August.
 
"Warren is not so much making a vote of confidence as he is extracting a pound of flesh (and then some)," Ritholtz writes.
 
Exactly. This has nothing to do with saving the financial system. It is all about Saint Warren taking advantage of Goldman. The firm can cut such a costly deal with him because it knows full well that most investors are believers in Saint Warren.
 
Amen.

—J.C. 

SALVATION: 

Love him or hate him, Warren Buffett knows how to strike a deal. And the terms of his $5 billion injection into Goldman Sachs are just one more example of how the Oracle of Omaha mints money.

Yes, the deal is expensive for Goldman Sachs. But consider what it's buying here. Goldman Sachs would not have agreed to pay a perpetual 10 percent dividend if the buyer was Sumitomo Mitsui Financial. Is Sumitomo's stamp of approval worth $500 million per year? Doubtful. Is Warren Buffett's? Quite possibly.

In recent weeks, Wall Street has had a harder time attracting confidence than capital. With this deal with Buffett, Goldman gets both.

The $500 million dividend payment will dent Goldman's net income and lower its earnings per share, which should lower its stock price.

But consider the upside. With Buffett's $5 billion and another $5 billion in common shares, Goldman is boosting its liquidity and improving its capital ratios. It's positioning itself well to potentially buy a commercial bank and readying itself to return to the debt markets when such opportunities arise. And both Goldman Sachs chief executive Lloyd Blankfein and Buffett know that they will.

True, Buffett's admission that he would not have struck this deal if he didn't believe the government would step in to bail out Wall Street's toxic assets was a bold one considering the chilly reception Hank Paulson received on Capitol Hill yesterday.

But while agreement on the details of the bailout seems far away, legislators on both sides of the aisle know that the government must respond with some kind of solution to this crisis. The do-nothing alternative would create even more financial destruction in the U.S. and global economies.

Buffett understands this. Reaching a solution won't be easy for Capitol Hill, but there simply is no other alternative.

Buffett is no saint, everything he touches does not turn to gold, and he may not have a deep track record with Wall Street investments. But Berkshire Hathaway is one of the few financial stocks that boasts a higher price today than it did a year ago, so surely he knows something that others don't. His investing style is consistent, simple, and straightforward. Taking a stake in a firm from which it has extracted a pound of flesh isn't part of the Warren Way.

—M.B.