The Sage of Obama, I Mean Omaha

"Get the feeling Warren Buffett doesn't care much for the administration's bank plan?

"At last weekend's annual Berkshire jamboree in Omaha, he was dismissive of its signature effort to bolster confidence. 'I apply my own stress test,' he said of Wells Fargo, a bank he owns a large stake in. Naturally, it came through with flying colors, never mind the cloud over its stock thanks to reports that the Obama administration will demand a stiff capital raising, diluting Mr. Buffett's stake.

"Piped in Charlie Munger, Mr. Buffett's vice chairman and long-time partner: Team Obama's 'bank stress test is very likely to be done poorly. Maybe the whole idea was not such a good idea.'

"Ouch. The administration would be in a better position to slap down its sometime 'adviser' if market confidence clearly depended on big cushions of bank capital right now. In a systemic crisis, however, no amount of capital is enough -- and, at the same time, no amount of capital is necessary if the government has put its own ability to print money behind the banking system's liabilities.

"That's where we are today. Mr. Buffett didn't touch on the playing-with-a-match aspect of Tim Geithner's stress tests -- the danger that he would identify capital holes that neither private investors nor a surly congress would be willing to fill, undermining today’s hard-won confidence. Nonetheless the sage of Omaha, who seldom discusses his specific stock holdings, made an exception of Wells Fargo for a reason: He obviously was sending a message to the Obama administration that the possible dilution of shareholders in banks that 'fail' the tests may do more harm than good if it scares away bank investors, who have the potential to supply all the capital banks need in the long run if they believe banks will be allowed to report profits and share them with investors.

"Mr. Buffett says he continues to support Mr. Obama, his candidate in last year's election. He acknowledged on CNBC yesterday, though, that his interaction with the president since he took office has consisted mostly of waving to him from a distance at public functions."

-- Holman W. Jenkins Jr., Wall Street Journal