The big news when Berkshire Hathaway (NYSE: BRK-B) (NYSE: BRK-A) reported second-quarter earnings on Friday was that even though profit soared 74% from Q2 2010, that increase was largely due to "paper" profits from mark-to-market gains on Warren Buffett's bullish derivative foray. Operating income, which is what Buffett focuses on, decreased by 12%, largely because of underwriting losses on insurance contracts.

Time to buy
The good news is that Buffett's baby is now trading within a gnat's eyelash of book value. That's way below the historic average, and it's amazing for a franchise like Berkshire Hathaway -- especially given that $40 billion or so is in risk-free T-bills.

But about those "risk-free" T-bills … Buffett wasn't too happy about their downgrade. He said that if anything, it raises doubts as to the validity of McGraw Hill's (NYSE: MHP) Standard & Poor's division. Of course, he may be a little bit biased, since S&P downgraded his own credit rating a while back -- and Berkshire also happens to be the plurality shareholder of S&P arch-nemesis Moody's (NYSE: MCO).

Transatlantic Holdings deal
The other big Berkshire news over the weekend was a $3.25 billion bid for Transatlantic Holdings (NYSE: TRH), by way of Berkshire Reinsurance whiz Ajit Jain's National Indemnity. Strangely for Buffett, the bid came after Transatlantic had already agreed to merge with another suitor, Allied World Assurance (NYSE: AWH). Buffett is hoping his higher bid will cause Transatlantic to call off the tryst and join him.

If Berkshire does succeed in acquiring Transatlantic, I think it will be a win for the company. The $3.25 billion will certainly earn a higher return in Transatlantic than it would in T-bills, and I trust Ajit Jain's insurance acumen. If he thinks it's a good deal, then it probably is.

Fool contributor Chris Baines is a value investor. Follow him on Twitter, where he goes by @askchrisbainesChris' stock picks and pans have outperformed 80% of players on CAPS. He and The Motley Fool own shares of Berkshire Hathaway. Motley Fool newsletter services have recommended buying shares of Berkshire Hathaway and Moody's. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.