Hank Paulson’s $700 billion bailout plan has polarized opinion.

But the Treasury Secretary has received glowing endorsements from two powerhouse investors: T. Boone Pickens and Warren Buffett.

Taipan Publishing editor Justice Litle says Buffett’s backing is particularly significant. It shows there are still a lot of very powerful people, not to mention sovereign wealth funds and foreign governments, willing to back Uncle Sam.

Justice says stocks may be heading “way up” in the short to medium term.

When this whole thing gets written up in the history books, Warren Buffett will have a noted role in the drama.

The “Oracle of Omaha” has built an image of folksy credibility over the years. It’s a neat trick, really. The richest man in the world (give or take a few billion, according to official tallies) has managed to portray himself as a sort of everyman.

And so when Buffett told Congress to “WAKE UP!” in a telephone interview with CNBC on Thursday, Wall Street breathed a sigh of relief.

The details are a little complex, so here is my quick and dirty take on what happened:

• Buffett puts together a fantastically, amazingly great deal for a piece of Goldman Sachs… a deal that is set to earn Berkshire billions in profit at near zero risk. (Barry Ritholtz has a great take on this.)
• The risk on the Goldman deal was zero, or close to zero, because Buffett likely got a federal guarantee that Goldman would not be allowed to fail. That was Buffett’s reward for stepping up, knowing he could lend stability with his mere presence.
• Treasury Secretary Hank Paulson (who used to run Goldman Sachs and put this whole thing together) then pulled Buffett aside and said something like “OK, Warren. You’re going to make out like a bandit here… How about you help out Ben (Bernanke) and me a little, too? If you could get Congress to put up or shut up, that would be swell.”
• Buffett says “OK, Hank. I’m your man,” and agrees to be interviewed on CNBC… where he states loudly and clearly that the bailout deal must get done, that Paulson is a good man doing a necessary thing, and that we will face “economic Pearl Harbor” if Congress doesn’t approve the whole shebang pronto. (You can read the transcript for yourself.)

So the Oracle of Omaha locks in another killer deal (the kind that only he could pull off)… burnishes his image as the wise man who keeps his head while others lose theirs all around him… maintains his folksy “aw shucks” style by voicing his belief that Republicans and Democrats will “do the right thing”… and gets credit for helping save the system to boot.

Neat trick, huh? No wonder the markets rallied…

And by the way, for those of you who might be wondering (or assuming): I’m no Buffett hater. I think the guy is brilliant. For anyone who wants to learn more about him, I highly recommend The Making of an American Capitalist by Roger Lowenstein. It’s a great story.

But the fact that Buffett is a brilliant investor and a first-rate mind doesn’t change the fact that he’s deep in the game… and that he’s happy to exploit every edge he can get. It’s that old Chicago motto: Ubi Est Mea (Where’s Mine?)

A Lot of Levers Left to Pull

It wasn’t just Buffett who got a great deal in the Goldman quid pro quo. Paulson did, too. Having the smartest investor in the world in your corner is always a nice thing. On the subject of “who will be the next Treasury Secretary,” Buffett had this to say:

… if I were running things, Republican or Democrat, I would ask Hank to stay on. I mean, you don’t get talent like that very often in any administrative job. And the guy pays an enormous price to do it. He’s probably sleeping three or four hours a night. He knows the market. He’s got the interests of the country at heart. So I think if I were either Barack Obama or John McCain and found myself in the White House in January, I would go down there and say, ‘Hank, do me a favor, stick around another year.’

“Hammerin’ Hank” will never again get an endorsement quite like that one.

So what does this mean to you and me? I think it’s a good reminder of how powerful the system still is, even now, after all that’s happened.

They’ve got “a lot of levers left to pull,” as a friend of mine likes to say.

Central banks all around the world have trillions in cash reserves… Uncle Sam has a printing press that chugs out the world’s reserve currency at the touch of a button… and there are plenty of influential “super investors” like Buffett out there, not to mention deep-pocketed sovereign wealth funds, which are willing to step up to the plate when asked.

This is why I think we’re headed up – maybe way, way up – in the short to intermediate term. I don’t take a Pollyanna view of how all this will play out long term. I just think we’ve gotten a taste of how good these guys are, and how well they play the game.

For what it’s worth, Marc Faber (aka “Dr. Doom”) agrees… sort of.

In a Q&A session with reporters in Hong Kong, Faber said the $700 billion rescue plan won’t be enough. He thinks homeowners should be bailed out, too… that this whole mess will take longer than six months to a year to solve… and that the S&P could rally as much as 14% on news of a bailout plan being finalized. That’s a pretty big pop.

Faber then thinks things will get ugly again sometime in 2009. (He could well be right on that. We’ll see…)

Source: How Buffett Saved Paulson’s Bacon (And Made a Killing, Too)