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.