Whitney Tilson VIF 2008.

Why We Are Still in the Early Innings of the
Bursting of the Housing and Credit Bubbles –
And How to Profit From It

T2 Partners LLC

Value Investing Forum
Mexico City
May 28, 2008

T2 Partners Management L.P. is a Registered Investment Advisor

145 E. 57th Street ˚ 10th Floor
New York, NY 10022
(212) 386-7160
Info@T2PartnersLLC.com ˚ www.T2PartnersLLC.com

A link to this presentation is at www.valueinvestingcongress.com.

We would like to thank Amherst Securities Group L.P. (www.asglp.com) for generously providing much of the data in this presentation.

This document is not a solicitation to invest in any investment product, nor is it intended to provide investment advice. It is intended for information
purposes only and should be used by sophisticated investors who are knowledgeable of the risks involved. All data and comments herein are believed to
be correct, but there are no guarantees and readers should do their own work. Please refer to the relevant Confidential Private Placement Memorandum for
full details on investment products and strategies of T2 Partners LLC.

From 2000-2006, the Borrowing Power of a Typical Home
Purchaser More Than Tripled – And Has Now Tumbled 39%
$400,000 1/1/95 1/1/00 1/1/04 1/1/05 1/1/06 1/1/07 6/1/07 1/1/08
1.
2.
Pre-Tax Income
Debt-to-Income Ratio
$ 30,000 $ 33,693 $ 36,966 $ 38,064 $ 39,581 $ 40,403 $ 40,403 $ 41,963
33% 33% 40% 45% 55% 55% 60% 35%
-39.4%
3. Non-Agency Mortgage Rate 10.50% 9.50% 7.50% 6.25% 6.00% 6.50% 6.75% 6.75%
4. Mortgage Type Full Am. Full Am. Full Am. Int Only Int Only Int Only Int Only Int Only
5. Borrowing Power $ 90,190 $ 110,191 $176,227 $274,060 $ 362,824 $341,873 $359,139 $ 217,585
$300,000 Equity Required 15% 15% 10% 0% 0% 0% 0%
Cash Required $ 15,916 $ 19,445 $ 19,581 $ - $ - $ - $ -
Leverage 3.0 3.3 4.8 7.2 9.2 8.5 8.9 5.2

$200,000

$100,000

$-
1/95 1/96 1/97 1/98 1/99 1/00 1/01 1/02 1/03 1/04 1/05 1/06 1/07 1/08

Pre-Tax Income Borrowing Power

Factors contributing to the ability to borrow more and more were:
1. Slowly rising income
2. Lenders being willing to allow much higher Debt-to-Income Ratios
3. Falling interest rates
4. Interest-only mortgages (vs. full amortizing)
5. No money down
T2 Partners LLC Source: Amherst Securities Group, L.P. -2-

There Was a Dramatic Decline in Mortgage
Lending Standards from 2001 through 2006

(aka “Liar’s Loans”)

T2 Partners LLC -3-

The Decline in Lending Standards Led to a
Surge in Subprime Mortgage Origination

13.6% of all
mortgages
originated
during the
year

$B

0.9% of all
mortgages
originated
during the
year

T2 Partners LLC -4-

The Surge in Borrowing Power and Decline in Lending
Standards Led to Home Prices Soaring Far Above Trend Line

A 34%
decline to
return to
trend line

Sources: OFHEO, Bureau of Economic Analysis.

T2 Partners LLC -5-

Lenders Cared Little Who They Lent To Because
They Assumed Perpetually Rising Home Prices
When home price appreciation slows, loss severity skyrockets when mortgages
default. What will loss severities look like when home prices are declining 10%
annually?! No-one knows because there is no precedent for this.

The assumption of perpetually
high HPA led lenders to give
virtually anyone a loan because
even if they defaulted, the
home could simply be resold
with little or no loss.

Source: LoanPerformance; OFHEO; Deutsche Bank; “Who's Holding the Bag?”, Pershing Square presentation, 5/23/07.
T2 Partners LLC -6-

Home Prices Are in an Unprecedented Freefall

Home prices fell an average of 12.7% in February in 20 major metropolitan areas

Over the six months
through February,
home prices fell at
an annual rate of
more than 25% in
Las Vegas, Phoenix,
Los Angeles, San
Francisco, San
Diego and Miami.

Source: WSJ, 4/30/08.

T2 Partners LLC -7-

Almost No Subprime, Alt-A and Jumbo
Mortgages Are Being Issued
Non-Agency Mortgage Issuance

Source: Deutsche Bank, Merrill Lynch

T2 Partners LLC -8-

Things Are Terrible – And There’s No Sign of a Bottom
• 8.8 million homeowners had mortgage balances equal to or greater
than the value of their homes as of the end of March according to
Moody’s Economy.com
– 30% of subprime loans written in 2005 and 2006 are already underwater
• In Q4 07, 5.82% of all mortgages were delinquent (30 days past due),
the highest level in 23 years, and 0.83% were in foreclosure, an all-time
high
• In February 2008, 25.8% of all subprime mortgages were delinquent,
up from 9.9% a year prior. 8.1% of Alt-A mortgages were delinquent,
up from 1.7%. And 3.2% of prime mortgages were delinquent, up from
2.6%.
– At JP Morgan Chase, 3.5% of the bank’s prime mortgages
were 30 days or more delinquent in Q1, up 40% since
December and more than 200% YOY
– At Wachovia, 1.15% of “traditional mortgages” were
delinquent in Q1, more than double the number in Q4
• Nearly three million homeowners were behind on their
mortgages at the end of 2007 and 1-2 million are at risk of
foreclosure in 2008
• Foreclosures in April rose 65% YOY
– About 2% of U.S. households were in some stage of
foreclosure during April
• Americans’ percentage of equity in their homes has fallen
below 50 percent for the first time on record since 1945
T2 Partners LLC -9-

Sales of Existing Homes Are Falling,
Leading to a Surge in Inventories
The proportion of Americans planning to buy a house is at a 33-year low

Source: National Association of Realtors.

T2 Partners LLC -10-

In Bubble Markets, Sales and Prices Are Way Down, While
the Number of Homes Sold in Foreclosure Has Skyrocketed
Case Study: Resale House Sales in San Diego
1,600

1,400

1,200
-34%
Resale
Homes 1,000
Sold
Normal
800 1,417
-54% 657
Foreclosure
600

400

200
+328%
338
79 (5% of total) (34% of total)
0
January '07 January '08

The median resale home price fell 16.4% from 1/07 to 1/08
Note: Excludes condos and new construction. Source: San Diego Union-Tribune article, 2/13/08.

About $440 Billion of Adjustable Mortgages
Are Scheduled to Reset This Year

We are Loans with teaser rates were never supposed to
here reset. Reinforced by many years of experience,
both lenders and borrowers assumed that home
prices would keep rising and easy credit would
keep flowing, allowing borrowers to refinance
before the reset. Now that home prices are falling
and the mortgage market has frozen up, very few
borrowers can refinance, which, as shown later in
this presentation, is leading to a surge in defaults –
in many cases, even before the interest rate resets!

Actual reset & IO simultaneous

Sources: LoanPerformance, Deutsche Bank; slide from Pershing Square presentation, How to Save the Bond Insurers, 11/28/07.


Subprime Resets Have Driven the Current Crisis.
Option ARM Resets Will Likely Drive the Next Leg Down
Monthly Mortgage Rate Resets
Option ARM resets
surge in 2010-11

Source: Credit Suisse.


What Is an Option ARM?
From Washington Mutual’s 2007 10K (emphasis added):
“The Option ARM home loan product is an adjustable-rate mortgage loan that provides the
borrower with the option each month to make a fully-amortizing, interest-only, or minimum
payment. As described in greater detail below, the minimum payment is typically insufficient to
cover interest accrued in the prior month and any unpaid interest is deferred and added to the
principal balance of the loan.
The minimum payment on an Option ARM loan is based on the interest rate charged during
the introductory period. This introductory rate has usually been significantly below the fully-
indexed rate. The fully-indexed rate is calculated using an index rate plus a margin. Once the
introductory period ends, the contractual interest rate charged on the loan increases to the fully-
indexed rate and adjusts monthly to reflect movements in the index.
If the borrower continues to make the minimum monthly payment after the introductory
period ends, the payment may not be sufficient to cover interest accrued in the previous month.
In this case, the loan will "negatively amortize" as unpaid interest is deferred and added to the
principal balance of the loan. The minimum payment on an Option ARM loan is adjusted on
each anniversary date of the loan but each increase or decrease is limited to a maximum of
7.5% of the minimum payment amount on such date until a "recasting event" occurs.
A recasting event occurs every 60 months or sooner upon reaching a negative amortization
cap. When a recasting event occurs, a new minimum monthly payment is calculated without
regard to any limits on the increase or decrease in amount that would otherwise apply under the
annual 7.5% payment cap. This new minimum monthly payment is calculated to be sufficient to
fully repay the principal balance of the loan, including any theretofore deferred interest, over the
remainder of the loan term using the fully-indexed rate then in effect.
A recasting event occurs immediately whenever the unpaid principal balance reaches the
negative amortization cap, which is expressed as a percent of the original loan balance. Prior to
2006, the negative amortization cap was 125% of the original loan balance... For all Option
ARM loans originated in 2006, the negative amortization cap was 110% of the original loan
balance. For Option ARM loans originated in 2007, the negative amortization cap was raised to
115%...
In the first month that follows a recasting event, the minimum payment will equal the fully-
amortizing payment.


Options ARMs Were Most Common in Housing Bubble
States That Are Suffering the Greatest Home Price Declines

California
18%

Other
44% Nevada
12%

Florida
9%

Hawaii
Arizona
9%
8%

Note: Based on 2006 originations; Source: First American CoreLogic, as reported in Defaults Rising Rapidly For 'Pick-a-Pay' Option Mortgages, WSJ, 4/30/08.

Background on Option ARMs and Their Rising Delinquencies

• “Borrowers who make the minimum payment on a regular basis can
see their loan balance grow and their monthly payment more than
double when they begin making payments of principal and full interest.
This typically happens after five years, but can occur earlier if the
amount owed reaches a predetermined level -- typically 110% to 125%
of the original loan balance.”
• “’My sense is that many option ARM borrowers are in a worse position
than subprime borrowers,’ says Kevin Stein, associate director of the
California Reinvestment Coaliton, which combats predatory lending.
‘They wind up owing more and the resets are more significant.’"
• “In Q1, Countrywide Financial Corp. said that 9.4% of the option ARMs
in its bank portfolio were at least 90 days past due, up from 5.7% at the
end of December and 1% a year earlier.”
• “Washington Mutual Inc. reported earlier this month that option ARMs
account for 50% of prime loans in its bank portfolio, but 70% of prime
nonperforming loans.”
• “At Wachovia Corp., non-performing assets in the company's option
ARM portfolio, which was acquired with the company's purchase of
Golden West Financial Corp., climbed to $4.6 billion in the first quarter
from $924 million a year earlier.”
Source: Defaults Rising Rapidly For 'Pick-a-Pay' Option Mortgages, WSJ, 4/30/08.


Comments from a Federal Senior Bank Examiner

“The next problem is with the Option ARM product.
Approximately 80-90% are paying the minimum credit card
payment and most loans are negatively amortizing.
Here the payment shock is two-fold – rate and principal – and the
increase in payments can be astronomical: 200% or higher, not the
10 to 100% that subprime has experienced. Also, the dollars
exposed in Alt-A are nearly 50% higher than subprime (Alt-A
average balance is $299k versus $181k for subprime).
Also, 73% were underwritten with Low or No Doc. The option arm
books of many lenders are already showing significant deterioration
and they have not even recast yet.
This is the next tsunami to hit the housing market. This will hit
much higher price points $600k and above as this was the
affordability product used by higher income/higher FICO score
households to buy that dream home.”


The Timing Indicates That We Are Still in the Early
Stages of the Bursting of the Great Mortgage Bubble
• Mortgage lending standards became progressively worse starting in 2000,
but really went off a cliff beginning in early 2005
• The worst loans are those with two-year teaser rates. As the subsequent
pages show, they are defaulting at unprecedented rates, especially once the
interest rates reset
• Such loans made in Q1 2005 started to default in high numbers in Q1 2007,
which not surprisingly was the beginning of the current crises
• The crisis has continued to worsen as even lower quality loans made over
the remainder of 2005 reset over the course of 2007, triggering more and
more defaults
• It takes an average of 15 months from the date of the first missed payment
by a homeowner to a liquidation (generally a sale via auction) of the home
• Thus, the Q1 2005 loans that defaulted in Q1 2007 are leading to
foreclosures and auctions in early 2008
• Given that lending standards got much worse in late 2005, through 2006
and into the first half of 2007, there are sobering implications for expected
defaults, foreclosures and auctions in 2008 and 2009, which promise to
drive home prices down dramatically
In summary, today we are only seeing the tip of the iceberg: an
enormous wave of defaults, foreclosures and auctions is just
beginning to hit the United States. We believe it will get so bad
that large-scale federal government intervention is likely.

Hundreds of Billions of Dollars of Mortgages Were
Securitized, Many On Terms With No Historical Precedent
Securitized First Liens – Origination Volume
These are the worst
loans: $828 billion worth

Green: Loans with historical precedent
Yellow: Loans with limited historical precedent
Red: Loans with no historical precedent

Source: Amherst Securities Group, L.P.


Origination Volume of Fixed Rate, Full Doc
Securitized Mortgage Loans, January 2005

In the best category of loans (full doc, fixed
rate), in January 2005, just before
mortgage lending standards collapsed,
nearly all securitized mortgages were
green, meaning they had FICO and LTV
characteristics with historical precedent.

Note: Subprime
mortgages are
generally those
with FICO
scores below
660; Alt-A is
from 660 to
720-740.


Securitized Mortgage Loans, June 2005

Mortgage lending standards began to
worsen by June 2005.



By January 2006, mortgage lending
standards had deteriorated substantially,
even more the best loans, with large
percentages yellow and red, meaning they
had FICO and LTV characteristics with little
or no historical precedent.



By June 2006, mortgage lending standards
had collapsed, even for the best loans, with
large percentages yellow and red, meaning
they had FICO and LTV characteristics with
little or no historical precedent.


Origination Volume of 2/28, Low Doc

For the worst category of loans (low/no doc
with two-year teaser rates), mortgage
lending standards were abysmal as early
as January 2005 – and got worse from
there.



A very high percentage of these loans will
never be repaid.


Monthly Default Rate for Fixed Rate Securitized
Mortgage Loans (Green)
10%

9%
Defaults are defined as loans that are 90 days or more
12/2004
delinquent. MDR measures the percentage of loans that
8% become 90 days or more delinquent during the month, as a 03/2005
percentage of non-delinquent loans at the beginning of the
06/2005
7% month.
09/2005
This chart shows the performance of the very best (fixed
6%
rate, green) mortgages. Note that late 2004 and early 2005 12/2005
vintage loans have MDRs of approximately 30 basis points,
MDR

5% 03/2006
which translates into a 3% cumulative default rate over three
years, whereas more recent vintage loans are quickly spiking 06/2006
4%
up to a 1% MDR, which translates into an 11.4% cumulative
09/2006
default rate in one year.
3%
12/2006

03/2007
2%
9/06 12/05
1% 12/04

0%
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38
Source: Amherst Securities Group, L.P. Age (months)


Monthly Default Rate for Fixed Rate
Securitized Mortgage Loans (Yellow)
10%

9% In this chart, late 2004 and early 2005 vintage loans have
12/2004
MDRs of approximately 50 basis points, which translates into
8% a 5.8% cumulative default rate in one year, whereas more 03/2005
recent vintage loans are quickly spiking up to a 2.5% MDR,
06/2005
7% which translates into an 26.2% cumulative default rate in one
year. 09/2005
6%
12/2005
MDR

5% 03/2006

06/2006
4%
09/2006

3%
12/2006

03/2007
2%

1%

0%
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38



Monthly Default Rate for Fixed Rate
Securitized Mortgage Loans (Red)
10%

9%
In this chart, late 2004 and early 2005 vintage loans have
MDRs of approximately 1%, which translates into a 11.4% 12/2004

8%
cumulative default rate in one year, whereas more recent
03/2005
vintage loans are quickly spiking up to a 4.5% MDR, which
translates into an 42% cumulative default rate in one year. 06/2005
7%

09/2005
6%
12/2005
MDR

5% 03/2006

06/2006
4%
09/2006

3%
12/2006

03/2007
2%

1%

0%
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38
Age (months)
Source: Amherst Securities Group, L.P.

Monthly Default Rate for 2-28
Securitized Mortgage Loans (Green)
10%
2-28 loans are those with two-year teaser
9%
interest rates that then reset to much higher
rates, which triggers a surge in defaults. 12/2004

8% In this chart, note the surge in MDR shortly 03/2005
after the two-year reset, as well as the
06/2005
7% rapidly rising MDR even before the reset in
more recent vintage loans – compare 9/05 9/05 09/2005
6% and 9/06 loans, for example.
12/2005
A 5.0% MDR translates into a 46.0%
MDR

5% 03/2006
cumulative default rate in one year.
06/2006
4% 9/06
09/2006

3%
12/2006

03/2007
2%

1%

0%
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38


Securitized Mortgage Loans (Yellow)
10%

9%
12/2004

8% 03/2005

06/2005
7%

09/2005
9/06 loans are defaulting at 5%
6%
per month even before the reset 12/2005
MDR

5% 03/2006

06/2006
4%
09/2006

3%
12/2006

03/2007
2%

1%

0%
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38

Securitized Mortgage Loans (Red)
10%

9%
For recent vintage 2-28 red loans, MDRs
are jumping to 5% long before the reset and 12/2004

8%
then spiking to 8% immediately thereafter.
03/2005

06/2005
7%

09/2005
6%
12/2005
MDR

5% 03/2006

06/2006
4%
09/2006

3%
12/2006

03/2007
2%

1%

0%
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38

Current MDR and CPR Trends Will Quickly
Lead to Unprecedented Default Levels
Three-Year Cumulative Defaults

(1 yr):

2004 green, Late 2005 and thereafter,
Historical levels fixed Green, 2/28

Late 2005 and thereafter, Late 2005 and thereafter,
Green, fixed Red, 2/28
Note: Cumulative defaults represent the amount of loans in default as a percentage of the original balance at
WALA 36 when keeping MDR and CPR constant for that time period. Source: Amherst Securities Group, L.P.

The IMF Estimates That Total Credit Losses Will Be Nearly $1 Trillion
– And Only One Quarter of This Has Been Realized To Date

The IMF’s estimate seems
reasonable to us, except the
estimate of prime losses, which
appears to be roughly $30 billion.
We think WaMu alone could have
$ billion
losses of $30 billion in its prime
portfolio (from Option ARMs and
HELOCs/CES).

Source: IMF, Bloomberg

Where Did the Securitized Mortgages End Up?
A Primer on ABSs and CDOs

Where Did All of These Toxic Loans End Up? They Were
Securitized, First Into Asset-Backed Securities (ABS)

Quick Review: What is a Securitization?

Source: Deutsche Bank Securitization Research; “How to Save the Bond Insurers”, Pershing Square presentation, 11/28/07.


The Issuance of ABSs Backed By Subprime and
Second-Lien Mortgages Surged in 2004, 2005 and 2006

Source: Thompson Financial, Deutsche Bank; “Who's Holding the Bag?”, Pershing Square presentation, 5/23/07.

Tranches from Asset-Backed Securities Were
Pooled into Collateralized Debt Obligations (CDOs)

Loss rates of, say,
20%, in the underlying
RMBS’s can lead to
catastrophic losses for
a CDO

This is an example of a “Mezzanine CDO.” A “High-Grade CDO”
would select collateral primarily from the A and AA tranches mixed
with ~25% senior tranches from other, often mezzanine, CDOs
Note: Asset-based securities backed by home mortgages are called Residential Mortgage-Backed Securities (RMBS), those backed by commercial real
estate loans are called Commercial Mortgage-Backed Securities (CMBS), etc.
Source: Citigroup, All Clogged Up: What’s Ailing the Financial System, 2/13/08.

The CDO Market Has Disappeared

Source: “How Mizuho Loved and Lost in CDOs”, WSJ, 5/14/08

How to Profit From the Continuing
Mortgage and Credit Crises
Long Positions Short Positions
1. Berkshire Hathaway 1. Washington Mutual

2. Fairfax Financial

(In alphabetical order)

As of May 12, 2008, funds managed by T2 Partners LLC are long
Berkshire Hathaway and Fairfax Financial and short Washington Mutual.
Positions may change at any time. This document is not a solicitation to
invest in any investment product, nor is it intended to provide investment
advice. It is intended for information purposes only and should be used by
sophisticated investors who are knowledgeable of the risks involved. All
data and comments herein are believed to be correct, but there are no
guarantees and readers should do their own work.


The Berkshire Hathaway Empire Today

6 Largest Stakes in
Public Companies*

T2 Partners LLC * As of 12/31/07

The Basics

• Stock price (5/27/08): $127,910
– $4,295 for B shares
• Shares outstanding: 1.55 million
• Market cap: $198 billion
• Total assets (Q1 ‘08): $281 billion
• Total equity: $119 billion
• Book value per share: $77,014


Recent Performance of Key Business Units (By Year)

2004 2005 2006 2007
Insurance Group:
Premiums Earned
GEICO 970 1,221 1,314 1,113
General Re 3 -334 523 555
Berkshire Reinsurance Group 417 -1,069 1,658 1,427
Berkshire H. Primary Group 161 235 340 279
Investment Income 2,824 3,480 4,316 4,758
Total Insurance Oper. Inc. 4,375 3,533 8,151 8,132

Non-Insurance Businesses:
Finance and Financial products 584 822 1,157 1,006
McLane Company 228 217 229 232
Shaw Industries 466 485 594 436
MidAmerican/Utilities/Energy 237 523 1,476 1,774
Other businesses 1,787 1,921 2,703 3,279
Total Non-Insur. Oper. Inc. 3,302 3,968 6,159 6,727

Total Operating Income 7,677 7,501 14,310 14,859

The Earnings of Berkshire’s Operating Businesses Have
Grown at a Very High Rate – And Growth is Accelerating

Per-Share Per-Share
Year Investments CAGR Pre-Tax Earnings CAGR
1965 $4 $4
1979 $577 42.8% $18 11.1%
1993 $13,961 25.6% $212 19.1%
2007 $90,343 14.3% $4,093 23.5%

Berkshire is becoming less of an investment
company and more of an operating business

Note: CAGR: 1965-1979, 1979-1993, 1993-2007. EPS is pretax and net of minority interests.


Berkshire Is One of the Fastest Growing Large Companies in the World

% Growth
Company Name Market Cap Rate*
Exxon Mobil $474,516 35 * 5-year
General Electric $387,876 4
Microsoft $315,559 10
compound annual
AT&T $237,739 17 growth rate of
Procter & Gamble $218,699 15
Google $207,248 100 +
EBIT (earnings
Bank of America $195,133 - before interest
Johnson & Johnson $186,472 10 and taxes)
Chevron $184,244 46
Wal-Mart $174,527 11 through Q3 07
Cisco Systems $174,315 22
Citigroup $164,876 -
Pfizer $155,924 5
Altria Group $153,151 1
Intel $147,052 13
AIG $144,718 17
Apple $144,257 147
JPMorgan Chase $143,173 -
Coca-Cola $140,577 6
IBM $138,146 7
ConocoPhillips $132,059 64
Hewlett-Packard $124,752 33
Verizon $123,619 -1
Merck $121,670 -8
Pepsico $118,281 8
Median 12 Source: Capital IQ

Valuing Berkshire
“Over the years we've…attempt[ed] to increase our marketable investments in
wonderful businesses, while simultaneously trying to buy similar businesses in their
entirety.” – 1995 Annual Letter

“In our last two annual reports, we furnished you a table that Charlie and I believe is
central to estimating Berkshire's intrinsic value. In the updated version of that table,
which follows, we trace our two key components of value. The first column lists our per-
share ownership of investments (including cash and equivalents) and the second
column shows our per-share earnings from Berkshire's operating businesses before
taxes and purchase-accounting adjustments, but after all interest and corporate
expenses. The second column excludes all dividends, interest and capital gains that
we realized from the investments presented in the first column.” – 1997 Annual Letter

“In effect, the columns show what Berkshire would look like were it split into two parts,
with one entity holding our investments and the other operating all of our businesses and
bearing all corporate costs.” – 1997 Annual Letter

Buffett’s Comments on Berkshire’s Valuation Lead
to an Implied Multiplier of Approximately 12
Pre-tax EPS
Excluding All Year-End
Investments Income From Stock Intrinsic Implied
Year Per Share Investments Price Value Multiplier
1996 $28,500 $421 $34,100 $34,100 13
1997 $38,043 $718 $46,000 $46,000 11
1998 $47,647 $474 $70,000 $54,000 13
1999 $47,339 -$458 $56,100 $60,000
• 1996 Annual Letter: “Today's price/value relationship is both much different
from what it was a year ago and, as Charlie and I see it, more appropriate.”
• 1997 Annual Letter: “Berkshire's intrinsic value grew at nearly the same
pace as book value” (book +34.1%)
• 1998 Annual Letter: “Though Berkshire's intrinsic value grew very
substantially in 1998, the gain fell well short of the 48.3% recorded for book
value.” (Assume a 15-20% increase in intrinsic value.)
• 1999 Annual Letter: “A repurchase of, say, 2% of a company's shares at a
25% discount from per-share intrinsic value...We will not repurchase shares
unless we believe Berkshire stock is selling well below intrinsic value,
conservatively calculated...Recently, when the A shares fell below $45,000,
we considered making repurchases.”


Applying the 12 Multiple: 2001 – 2007

Pre-tax EPS
Excluding All Intrinsic Subsequent
Investments Income From Value Year Stock
Year End Per Share Investments* Per Share Price Range
2001 $47,460 -$1,289 $64,000 $59,600-$78,500
2002 $52,507 $1,479 $70,000 $60,600-$84,700
2003 $62,273 $2,912 $97,000 $81,000-$95,700
2004 $66,967 $3,003 $103,000 $78,800-$92,000
2005 $74,129 $3,600 $117,300 85,700-$114,200
2006 $80,636 $5,200-$5,400** 143,000-144,400 107,200-151,650
2007 $90,343 $5,500-$5,700 *** 156,300-158,700 ?

* Unlike the table on page 4 of the 2007 Annual Report, we include earnings from Berkshire’s insurance businesses.
** Actual result was $6,492, but we reduce this to assume the 2nd-worst year ever for super-cat losses.
*** Actual result was $6,270 but we reduce the pre-tax, pre-investment-income margins of the insurance businesses
by 400 basis points (from 14% to 10%) to reflect Buffett’s guidance in the Annual Report.


We Believe Berkshire Is Approximately 20% Undervalued

Intrinsic value based on
YE 2007 estimate: $157,000

Intrinsic Value*

* Investments per share plus 12x pre-tax earnings per share (excluding all income from investments) for the prior year.

Buffett Is Putting Berkshire’s Cash to Work Rapidly

12
10
8
6
4
2
0
(2) 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Q1 08

(4)
(6)

Acquisitions Net Stock Purchases

• He’s doing a good job – but the cash is coming in so fast!
– A high-class problem
• Markets have a way of presenting big opportunities on short notice
– Junk bonds in 2002; cheap blue-chip stocks in 2005-07
– Buffett has reduced average maturity of bond portfolio so he can act quickly

12-Month Investment Return

• Current intrinsic value: $157,000/share
• Plus 10% growth of intrinsic value of the business
• Plus cash build over next 12 months: $6,000/share
• Equals intrinsic value in one year of $178,700
• 40% premium to today’s price


Risks

• No catalysts
– Intrinsic value continues to grow nicely
• Buffett’s health
– In good health; turned 77 last Aug. 30th
– Strong board and succession plan in place
– Little Buffett premium in stock today
• Major super-cats
• Can’t find place to invest cash
– This can change quickly
– There are worse things than sitting on a lot of cash
– Buffett has said Berkshire will distribute cash if he doesn’t think
he can allocate it


Conclusion

• Cheap stock: 80-cent dollar, giving no value to immense
optionality
• Extremely safe: huge cash and other assets provide downside
protection


Fairfax and Its Primary Subsidiaries Had a Great 2007 and Growth
and Underwriting Trends Have Been Strong for Many Years

T2 Partners LLC Source: -57-
Fairfax presentation, year end 2007

Fairfax’s Financial Strength Has Improved Dramatically

Q1 08

$1,155

Q1 08
911
1,121
2,032
1,132
900
6,401

12.3%
24.1%

Source: Fairfax presentation, year end 2007; Q1 08 earnings release


Hamblin Watsa’s Investment Performance
Has Been Spectacular


Fairfax’s CDS Portfolio Has Paid Off In a Big Way – And We
Think There’s A Lot More Upside As the Credit Crunch Worsens

Fairfax has harvested $1.125 billion in
cash from its CDS portfolio in the last three
quarters ($885M in Q1 alone) and, as of
4/25/08, has $17.5 billion notional amount
of credit default swaps, valued at $685M


Fairfax Is Trading At a Low Multiple of Book Value,
Even If the Entire CDS Portfolio is Excluded

• Price (5/6/08): $282.75
• Market cap (5/6/08): $5.1 billion
• Tangible book value (3/31/08): $4.76 billion
• P/B: 1.07
• Tangible book value, subtracting $304.6 million loss on CDSs
from 4/1/08 – 4/25/08 (with no tax adjustment): $4.46 billion
• P/B (adjusted): 1.14
• Tangible book value, subtracting entire CDS portfolio of $990.9
million on 3/31/08 (with no tax adjustment): $3.77 billion
• P/B (adjusted): 1.35

Summary: We think Fairfax’s core business is worth
1.5x book value, so at today’s price, the stock does not
fully reflect this value, plus we’re getting a free call
option on Fairfax’s CDS portfolio.

WaMu Over the Past Year

Closed 5/27/08: $9.50


WaMu’s Loan Portfolio Mix

Biggest areas of
concern: $134.3 billon,
Single-Family
Residential1
55% of total exposure.
$52.7 We think WaMu’s
losses in these three
22% areas could exceed
$30 billion.

23%
Option ARMs
$55.8

Source: WaMu Q1 08 Credit Risk Management presentation


Net Charge Offs Are Rising Rapidly
in WaMu’s Option ARM Portfolio

1
Estimated loan-to-value calculation based on OFHEO December 2007 data (released February 2008).
T2 Partners LLC Source: WaMu Q1 08 Credit Risk Management presentation -65-

82% of WaMu’s Option ARM Portfolio Experienced a
Net Increase in Negative Amortization During 2007
100%
No Increase:
$10.7 billion

75%

50%
Increase:
$48.2 billion

25%

0%
Source: WaMu 2007 10K, page 57.

Option ARM Portfolio Resets Spell Future Trouble


62% of WaMu’s Option ARM Portfolio
Is in California and Florida

Other
29%

California
49%

NY/NJ
9%

Florida
13%

71% of WaMu’s Option ARM Portfolio Was Originated
in the Peak Bubble Years of 2005-2007
2007
25% Pre-2005
29%

2006
23% 2005
23%


Net Charge Offs Are Rising Rapidly in WaMu’s
Home Equity Loan/HELOC Portfolio 1

74% of WaMu’s
exposure is
2nd liens

1
Excludes home equity loans in the Subprime Mortgage Channel.
2
Estimated loan-to-value calculation based on OFHEO December 2007 data (released February 2008).

WaMu Has More Exposure to Home Equity Loans Than
Any Other Large Bank With the Exception of Countrywide

Source: U.S. Home Equity Woes: Banks Grapple With Higher Losses, Fitch, 3/14/08

72% of WaMu’s Home Equity Loan and HELOC Portfolio
Was Originated in the Peak Bubble Years of 2005-2007

2007 Pre-2005
27% 28%

2006 2005
24% 21%


Net Charge Offs Are Rising Rapidly in WaMu’s
Subprime Portfolio 1

1
Comprised of mortgage loans purchased from recognized subprime lenders and mortgage loans originated under the
Long Beach Mortgage name and held for investment.
2
Estimated loan-to-value ratio based on OFHEO December 2007 data (released February 2008).
3
Estimated combined loan-to-value ratio based on OFHEO December 2007 data (released February 2008).

75% of WaMu’s Subprime Portfolio Was
Originated in the Peak Bubble Years of 2005-2007
2007
11%
Pre-2005
25%

2006
40%

2005
24%

Subprime Mortgage Channel Resets Are Almost Over


Loan Volumes of Fixed-Rate Loans Have Risen, While
ARM and HEL/HELOC Loan Volumes Have Tumbled
$15,000
Fixed-rate
Loans
$12,000
Option
ARMs

$9,000 Medium-
term
ARMs
HEL&
$6,000 HELOC

$3,000

$0
Q1 07 Q2 07 Q3 07 Q4 07 Q1 08
T2 Partners LLC Source: WaMu Q1 08 earnings release -76-

WaMu’s Total Nonperforming Assets


WaMu’s Allowance for Loan Losses


We Think Even WaMu’s Aggressive Estimate for Cumulative Remaining
Losses in Its Home Loan Portfolio Will Prove to Be Too Low


Summary of Why We Are Short WaMu

• WaMu has lost $3.59/share in the last two quarters (-$2.19 in
Q4 07 and -$1.40 in Q1 08)
• With the recent investment by TPG, tangible book value per
share is a bit under $13
• We think the company will lose $4-5/share in 2008
• This would reduce book value to $8-9/share
• With huge losses in the immediate past and Option ARM losses
looming due to large resets in 2009-2012, we question whether
the stock would even trade at book value


Whitney Tilson VIF 2008.

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