Buffett rented good name to Goldman too cheaply

At the height of the financial crisis, Goldman Sachs sold Warren Buffett's Berkshire Hathaway $5 billion of perpetual preferred stock with a 10 percent dividend and warrants on $5 billion worth of common stock at a strike price of $115 a share.

This package gave Berkshire a return of more than 15 percent in exchange for its money and Buffett's endorsement, which Goldman desperately needed to raise funds to survive the panic.

At first it seemed that Berkshire had gotten a rich price for Buffett's one-time imprimatur to help Goldman avert failure in a liquidity crunch. Since then, Buffett has been sitting in Omaha, Nebraska, cashing checks for $500 million a year. The preferred is an extremely expensive form of capital that is redeemable at Goldman's option. It is costing Goldman $100 million to $200 million a year in extra dividends compared with the cost if it refinanced. Goldman can afford it, so why has it not paid this money back?