Surprise! Warren Buffett negotiated a better deal with Goldman Sachs than the Treasury Department did

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It’s already been noted that Warren Buffett seemed to get a much better deal on his Goldman Sachs capital injection than the Treasury Department did. It turns out the United Steelworkers union has been kind enough to actually run the numbers on the two deals, using the Black-Scholes option pricing model to value them (steel workers are totally into Black-Scholes; aluminum workers prefer the binomial model). Here’s the bottom line, from an analysis the USW sent to Hank Paulson:


I do think Buffett could demand a premium in this case because his investment was seen as an endorsement (albeit it perhaps a premature one) of Goldman Sachs in particular, while Treasury has been offering similar deals to every bank and its brother. And Treasury’s goal is to save the banking system while protecting taxpayers, while Buffett’s is to maximize returns for Berkshire Hathaway shareholders. So there should be a gap between the two valuations. I’m not sure it needed to be quite that big, though.