The involvement of Warren Buffett's Berkshire Hathaway and Goldman Sachs in both the Burlington Northern deal and the Fannie Mae tax credit deal raise some interesting questions about Goldman Sachs's role, given that Mr. Buffett's Berkshire made a $5 billion investment in Goldman last year. In the case of the railroad, the deal announcement said that Goldman Sachs was the investment banker for the railroad. I haven't heard any BNSF shareholders complaining about the price. But even so, if I'm a non-Buffett railroad shareholder, do I really want the investment banker in charge of shopping around my company to the highest bidder to be part-owned by one of the bidders? And do I even want to be a seller if Mr. Buffett is a buyer? I understand that investment bankers aren't like lawyers in terms of conflicts policy and that these deals aren't necessarily adversarial. I even understand that the highest bidder may not be the best one. And I understand that the actual shopping around, if there was any, may have even been done by Evercore, which was also listed as BNSF banker on the deal, given how these press releases are manipulated for the purpose of affecting standings in "league table" rankings for investment banker braggng rights. Still, it's a bit of an unusual situation. We've noted how Mr. Buffett is politically active and now will be an owner of a railroad that stands to benefit from all kinds of government regulations and subsidies. But it's also worth noting that he's a buyer of the company and also a strategic investor in the investment banker that is advising the company that is selling. Talk about being on all sides of the deal. Goldman, for its part, is trying to sell a railroad to someone who already owns a big chunk of Goldman. Now, you could say, if Goldman is trying to give Mr. Buffett a sweetheart deal on this railroad at the expense of BNSF shareholders, where's the competing bidder making a public higher offer? But the expense of launching that kind of takeover battle when it looks like Mr. Buffett, between his existing status as a BNSF minority shareholder and as an investor in BNSF's investment baker, already has the deal wired would be prohibitive when weighed against the chance of success.
The Fannie Mae deal raises some similar issues in terms of Goldman having Mr. Buffett's Berkshire as both an investor and a business partner. Goldman has apparently figured out some deal to buy tax credits at a discount (a story in itself). A lot of people would probably like in on that deal. It seems like a pretty good deal, if you can get it. But Goldman seems to have offered to bring Berkshire in on it. Why Berkshire? Why not make the benefits available to all Goldman shareholders, or to all Goldman customers, under some transparent formula? Goldman and Berkshire have a right of contract to make any deal they want, of course, but if it's a deal that involves tax credits, there may be a public interest involved, too. And Goldman's other shareholders and customers -- some of whom may be Berkshire Hathaway's competitors -- may wonder about whether Mr. Buffett's getting better treatment than they are getting. Goldman may have brought Mr. Buffett into the tax credit deal hoping that his folksy image would insulate the firm from the perception problem associated with this sort of tax craftiness, but in fact his involvement may just reinforce the idea of special treatment for elites that has the public so riled up at both Wall Street and Washington.