Senate Passes $700 Bn Bailout!

Image Source : The Big Picture - We need to act quickly on the Bailout!

By John Carney, ClusterStock, Oct 1, 08 9:45 PM

The Senate voted 74 - 25 to pass its own version of the $700 Billion Bailout Bill.

As we reported earlier the Senate Bill is a modfied version of the Hanke-Panke plan, it includes unlimited borrowing from the federal treasury for the FDIC and increases from $100,000 to $250,000 the amount per depositor which is insured by the FDIC. They've also piled on some further AMT protection, tax breaks for alternative fuels and research and development and some unrelated nonesense about health insurance coverage for substance abuse and mental health treatment. The media is calling these additional measures "sweeteners" which is an accurate discriptor if pig fat tastes sweet to you. The Wall Street Journal lays it out here, or if you have nothing else going on tonight WSJ has the full text of the bill here.

Apparently this thing must be pretty important because Presidential candidates John McCain and Barack Obama showed up to vote for the bill. McCain and Obama are Nos. 1 and 3 on the votes missed list.

Related Posts :

1. National Debt to Exceed $10 Trillion Tomorrow
2. House Rejects $700 Bn Financial Bailout

Please Note!
This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer on the bottom for more information.

You are welcome to republish this article, or any portion thereof.
Please, cite the actual/original source. I would be grateful if you could link back.

In Warren Buffett We Trust (GE)

By Henry Blodget, ClusterStock, Oct 1, 08 1:52 PM

It's not true that the US government is the only entity buying or lending to US companies these days. Warren Buffett is, too. And thank goodness for that.

Of course, Warren's not worth $40 billion because he's a moron, and he's getting a much better deal on his investments than Hank Paulson will soon be getting on his. Specifically, as with his investment in Goldman Sachs, Warren's getting $3 billion of GE preferred stock with a 10% dividend and a warrant to buy another $3 billion of common at a discount. That's an awesome deal, one that just about anyone would else would kill for.

Of course, GE will insist that it doesn't need the money--and, perhaps, in a technical sense, it doesn't. But Warren's money was expensive for GE, and Jeff Immelt's no dummy, either (if he hadn't needed the money, he wouldn't have sold the stock). And the $12 billion common stock offering that GE will now be able to do far more easily now that Warren has invested will also be expensive.

The biggest story here, though, is that the world's most respected investor is--in his own brilliant way--bailing out some of the best companies in the US economy. Now that Warren is wading into the GE waters, other investors will, too--even on far crappier terms.

Given that the folks in Washington have blown their credibility to smithereens, the full faith and credit of Warren Buffett are currently worth more in the public's eyes than the same attributes of the US government. Which means the Oracle, in his own charming way, is even more of a national treasure.

Related Posts :

1. Buffett Buys $3 Billion Of General Electric Preferred, Company Selling $12 Billion of Common (GE)
2. Warren Buffett: We Have "Terrible, Terrible Problems"
3. Buffett : Economy 'on Floor' After Cardiac Arrest (Update1)
4. Goldman and Buffett: Salvation or Desperation?

Please Note!
This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer on the bottom for more information.

You are welcome to republish this article, or any portion thereof.
Please, cite the actual/original source. I would be grateful if you could link back.

Buffett Buys $3 Billion Of General Electric Preferred, Company Selling $12 Billion of Common (GE)

By John Carney, ClusterStock, Oct 1, 08 2:06 PM

General Electric Co (GE) just announced plans to raise $15 billion, with a little help from Warren Buffett. The company is selling $12 billion of common stock to the public and $3 billion of preferred to Berkshire Hathaway.

The old Oracle of Omaha has cut deal strikingly similar to the deal he cut with Goldman Sachs. Here he is getting perpetual preferred stock with a 10% dividend that is callable after three years at a 10% premium. He’s also snatching up warrants to purchase $3 billion of common stock at $22, which is a two dollar discount from where the stock is trading right now.

How closely is this investment in GE tied to Buffett’s faith in the bailout? GE is currently protected from short-selling under the SEC’s emergency ban, and GE may be eligible to sell assets to the Securitized Housing Investment Trust. He cited the bailout as a key to his investment in Goldman Sachs.

Fascinatingly, in an interview with Becky Quick on CNBC, Buffett said he was sold on this deal by investment bankers at Goldman Sachs. So those guys have talked Warren into parting with $8 billion of his cash in less than a week. Impressive.

CNBC describes Buffett’s investment in GE as “a very expensive advertising campaign.” To be sure, Buffett putting money into GE will make it attractive to many investors. But if you look at the great terms Buffett is demanding for his money, you have to wonder if other investors really should be buying into the common shares without the promised dividend and warrants.


Related Posts :

1. Warren Buffett: We Have "Terrible, Terrible Problems"
2. Buffett : Economy 'on Floor' After Cardiac Arrest (Update1)
3. Goldman and Buffett: Salvation or Desperation?

Please Note!
This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer on the bottom for more information.

You are welcome to republish this article, or any portion thereof.
Please, cite the actual/original source. I would be grateful if you could link back.

Warren Buffett: We Have "Terrible, Terrible Problems"

By Henry Blodget, ClusterStock, Oct 1, 08 3:29 PM

The most charming man alive phones CNBC from a jet to explain why he just bought $3 billion of GE, urge Congress to pass the bailout, and explain that a situation he just described as an "economic Pearl Harbor" has already gotten worse.

A few key points:

• Warren reiterates support for the bailout, but also reiterates--half a dozen times--that it is only a good deal for the taxpayer if the government buys the trash assets for market prices. Unfortunately, the government has already said it won't be paying market prices. It will be paying above-market prices--and thus quietly recapitalizing the banks without getting much equity in exchange. Warren Buffett wouldn't do this deal. The US taxpayer shouldn't, either.
  
  
• Warren says we now have "terrible, terrible problems." He blasts Congress as being a couple of paramedics who arrive at the heart attack victim and, instead of reaching for the defibrillator paddles, argue about who's fault it was.
  
  
• "There's no way a smart person can go broke except through borrowed money."

Transcript courtesy of CNBC :

CNBC’s Becky Quick: MR. BUFFETT, THANK YOU FOR JOINING US.

Warren Buffett: I'M IN AN AIRPLANE AND I HOPE TO SEE -- HOPE IT'S BEING POWERED BY GE ENGINES.

Quick: WHY INVEST IN GE NOW?

Buffett: I'VE FOLLOWED THE COMPANY FOR A VERY LONG TIME. I KNOW MANAGEMENT. WE BUY LOTS OF WIND TURBINES FROM THEM. FRANKLY, THESE MARKETS ARE OFFERING THESE OPPORTUNITIES THAT WERE NOT AVAILABLE SIX MONTHS AGO.

Quick: THE TERMS OF THIS DEAL VERY DIFFERENT FROM SOMEONE WHO WOULD BE BUYING COMMON STOCK.

Buffett: THIS DEAL IS PATTERNED VERY MUCH AFTER THE GOLDMAN SACHS DEAL.THE ONLY DIFFERENCE IS THAT THE PREFERRED IS NONCALLABLE FOR THREE YEARS.

Quick: DID YOU GO TO GE OR DID THEY COME TO YOU?

Buffett: THROUGH GOLDMAN SACHS, I WAS APPROACHED ON IT VERY RECENTLY AND SO GOLDMAN SACHS APPROACHED ME.

Quick: WHEN WE TALKED LAST WEEK ABOUT GOLDMAN SACHS, YOU SAID THE REASON YOU WERE DOING THAT DEAL IS BECAUSE YOU ASSUMED SOMETHING WOULD GET THROUGH CONGRESS. THAT PLAN RAN INTO A WALL THIS WEEK. ARE YOU STILL EXPECTING SOME SORT OF DEAL WILL BE MADE?

Buffett: THE CONGRESS WILL DO THE RIGHT THING WHEN THEY UNDERSTAND. THEY MAY GET SIDETRACKED AS THEY DID EARLIER THIS WEEK. THERE'S NO QUESTION ABOUT THE PATRIOTISM AND WILLINGNESS TO ACT IN THE INTEREST OF THE COUNTRY. IT WON'T BE 435 TO NOTHING, BUT I'M BETTING THEY'LL ACT RESPONSIBLY ON THIS. I HAVE EVERY EXPECTATION THEY WILL, BUT I'LL STILL FEEL BETTER AFTER THE VOTES HAVE BEEN COUNTED.

Quick: THE DEAL WITH GE TODAY AND GOLDMAN LAST WEEK, ARE THESE STILL GOOD DEALS IF NOTHING GETS THROUGH CONGRESS?

Buffett: NO. I THINK WE HAVE TERRIBLE, TERRIBLE PROBLEMS. I SAID TWO WEEKS AGO THAT IT WAS AN ECONOMIC PEARL HARBOR. TWO WEEKS LATER, WE'RE IN WORSE SHAPE BECAUSE YOU DON'T WANT TO DELAY WHEN THERE IS A NATIONAL EMERGENCY. I THINK THAT'S PROBABLY OBVIOUS TO A MAJORITY OF CONGRESS. I THINK WE'LL GET ACTION. IF WE DON'T, I WILL HAVE DONE SOME DUMB THINGS.

Quick: THE HOLDUPS OVER THE LAST COUPLE OF DAYS, HOW DAMAGING IS THAT TO THE UNITED STATES ECONOMY?

Buffett: IT HURTS. YOU'VE HAD AN ECONOMY THAT'S LIKE A GREAT ATHLETE THAT'S HAD A HEART ATTACK, CARDIAC ARREST, AND THE PARAMEDICS THAT HAVE COME, INSTEAD OF ARGUING WHO WAS AT FAULT, THE ATHLETES SHOULD HAVE BEEN CHECKING HIS BLOOD PRESSURE MORE CAREFULLY. THE IMPORTANT THING IS TO APPLY THE RESUSCITATOR. IT DOESN'T HELP SPENDING TIME WORRYING ABOUT WHO IS TO BLAME FOR THE PATIENT HAVING THE HEART ATTACK.

Quick: YOU KNOW, WE'VE HAD PEOPLE CALL IN BRINGING UP THIS QUESTION, IF THIS IS SUCH A GREAT DEAL FOR THE AMERICAN TAXPAYER, WHY ISN'T WARREN BUFFETT INVOLVED IN THAT AS WELL. WHAT DO YOU SAY TO THAT?

Buffett: I DON'T HAVE 700 BILLION. WE WOULD BUY AT MARKET PRICES, WE WOULD BUY THE MORTGAGE DEBT IOF WE HAD THE BORROWING CAPACITY OF THE GOVERNMENT. IF WE COULD DO THE DEAL THAT IS AVAILABLE TO THE UNITED STATES GOVERNMENT AND HAVE STAYING POWER, WE WOULD MAKE SIGNIFICANT MONEY. IF THEY BUY THE ASSETS AT MARKET PRICE, I WOULD LOVE TO HAVE 1% OF THE PROFIT OR LOSS THAT RESULTS FROM BUYING THESE ASSETS FROM TROUBLED FINANCIAL INSTITUTIONS.THEY'RE COMPETITION IN BUYING THESE IS A BUNCH OF HEDGE FUNDS AND THE GOVERNMENT WITH ITS BORROWING COSTS, IF THEY BUY THEM AT MARKET, THEY WILL REALIZE A SIGNIFICANT PROFIT OVER TIME. I WOULD LOVE TO HAVE ONE PERCENT OF THE ACTION. I CAN'T AFFORD ANY MORE THAN THAT. THE KEY IS BUYING AT MARKET PRICES.

Quick: ARE YOU SAYING THAT IF YOU COULD GET 1% OF THIS DEAL, YOU WOULD PUT UP YOUR MONEY?

Buffett: YES. IF THE U.S. TREASURY OFFERED ME THE CHANCE TO HAVE A 1% PARTICPATION IN THE PROFIT OR LOSS IN THE 700 BILLION THEY'LL SPEND AND IF THEY BUY THE ASSETS AT MARKET PRICES, I'D FEEL I HAVE A SWEET DEAL. I WOULD TAKE 1% OF THE DEAL.

Quick: THIS DEAL YOU DID TODAY --

Buffett: THE ASSETS ARE PRICED ATTRACTIVELY NOW, BECKY. THAT IS THE THEME THEY'RE CINCHED, BUT IF YOU BUY AT MARKET PRICES, IF YOU BUY WHAT MERRILL LYNCH SOLD AT 22 CENTS ON THE DOLLAR, YOU'RE VERY LIKELY TO MAKE MONEY.

Quick: HAVE YOU SPOKEN TO ANYONE ON CAPITOL HILL ABOUT JUST THAT?

Buffett: I'VE SPOKEN TO SOME PEOPLE, SURE.

Quick: AND YOU'VE TOLD THEM YOU'D BE INTERESTED IN TAKING 1%?

Buffett: I DON'T THINK IT'S VERY FEASIBLE, BUT IF IT WERE OFFERED TO ME AND THEY WOULD BUY THE ASSETS AT MARKET PRICE AND I HAD TREASURY FUNDING COSTS WHICH ARE VERYLOW, AND THE STAYING POWER OF THE TREASURY, WHICH IS INDEFINATE, YOU'RE GOING TO MAKE MONEY ON THEM.

Quick: WHAT DRAWS YOU TO GENERAL ELECTRIC AND WHAT GOT YOU INTO THIS DEAL?

Buffett: GENERAL ELECTRIC IS THE BACKBONE OF AMERICAN INDUSTRY. I KNOW JACK WELCH WELL FOR DECADES. THEY'VE GOT SOME MARVELLOUS BUSINESSES. I'M SURE THEY HAVE SOME TROUBLES IN FINANCE, BUT THEY'VE BECOME TAINTED AS EVERY COMPANY THAT HAS TO BORROW MONEY ALL THE TIME. THEY'RE GOING TO BE AROUND FIVE OR TEN OR 100 YEARS FROM NOW. IF YOU BUY AT THE RIGHT TIME, YOU'LL PROBABLY MAKE SOME MONEY. THAT DOESN'T SAY ANYTHING ABOUT WHERE STOCKS WILL BE IN SIX MONTHS. I THINK I KNOW WHAT WILL HAPPEN IN FIVE OR TEN YEARS. I JUST DON'T KNOW WHAT WILL HAPPEN IN FIVE OR TEN MONTHS.

Quick: YOU TALKED FOR A LONG TIME ABOUT HOW YOU LIKED TO BUY THINGS YOU UNDERSTAND VERY WELL, THAT YOU SEE WELL, THINGS LIKE KRAFT, BUDWEISER, COCA-COLA, HOW DOES THIS FIT IN WITH THE REST OF YOUR PORTFOLIO?

Buffett: WE BOUGHT A LOT OF WIND TURBINES FROM GE. WE DO A LOT OF BUSINESS WITH GE. THEY TOUCH ALMOST ALL CORNERS OF THE AMERICAN ECONOMY. ALL CORNERS OF THE INTERNATIONAL ECONOMY. IT IS A BIG, POWERFUL COMPANY THAT WILL TAKE SOME LOSSES IN THEIR FINANCE OPERATION AND THAT'S PART OF THE GAME, BUT THEY'VE GOT STAYING POWER AND A LOT OF THE BUSINESSES WILL BE WORTH MORE MONEY FIVE OR TEN YEARS FROM NOW.

Quick: YOU'VE BEEN ON A SPENDING SPREE THIS YEAR. ANOTHER $3 BILLION ON THIS. IS THERE A POINT WHERE YOU SAY I'M NOT SPENDING ANYMORE OF MY CASH?

Buffett: WE WILL ALWAYS HAVE PLENTY OF CASH AROUND BERKSHIRE. I REGARD 10 BILLION AS A MINIMUM. I DO NOT WANT TO BE DEPENDENT ON THE KINDNESS OF STRANGERS IN THIS WORLD. I WILL CONSIDER THE SURPLUS CASH AT BERKSHIRE , BUT I WON'T GO BELOW A CERTAIN MINIMUM. I DON'T WANT TO COUNT ON BANKS LENDING ME MONEY. WE'LL ALWAYS KEEP 10 BILLION OF CONSOLIDATED CASH AROUND....I LIKE SPENDING.I LIKE INVESTING AND THE CHEAPER THINGS GET, THE BETTER I LIKE IT. THIS IS A GOOD PERIOD FOR US, ANYBODY -- GO AHEAD.

Quick: GO AHEAD.

Buffett: WELL, AS LONG AS YOU DON'T BUY THINGS WITH BORROWED MONEY, IT'S A TERRIBLE MISTAKE TO USE BORROWED MONEY IN MY VIEW, BUT IF YOU HAVE THE CASH. IF I BOUGHT A FARM A YEAR AGO AT $2,000 AN ACRE AND I HAD THE CHANCE TO BUY THE FARM NEXT TO IT FOR $1,400 AN ACRE, I WOULD NOT PAY A LOT OF ATTENTION TO VARIOUS INDUSTRIES OR ANYTHING LIKE THAT. IF I LIKED THE INVESTMENT, I WOULD BUY MORE OF IT AND WE'RE GETTING A CHANCE TO BUY THINGS ON MORE ATTRACTIVE TERMS THAN WE COULD BUY THEM A YEAR OR TWO YEARS SO THAT'S WHERE WE'RE SPENDING OUR MONEY.

Quick: YOU'RE GETTING MORE ATTRACTIVE TERMS THAN YOU WOULD GET IF YOU WERE AN AVERAGE SHAREHOLDER WADING INTO THE MARKET.

Buffett: I THINK THAT'S TRUE.

Quick: PEOPLE LOOK AT YOU, WATCH WHAT YOU'VE DONE AND WONDER IF THEY SHOULD FOLLOW SUIT. WHAT WOULD YOU TELL SOMEBODY IF THEY ASKED YOU THAT?

Buffett: I WOULD LOOK AT SPECIFIC SECURITIES WE BUY. WHATEVER BUSINESS I THOUGHT I UNDERSTOOD WELL OR I FELT CONFIDENT ABOUT THE LONG TERM PROSPECTS, OR CONFIDENT ABOUT THE MANAGEMENT OR THE PRICE WAS ATTRCATIVE, I WOULD BUY IT, BUT NOT WITH BORROWED MONEY.

Quick: THAT'S THE KEY? NOT BORROWING MONEY...NOT LEVERAGING UP?

Buffett: YEAH. THERE'S NO WAY A SMART PERSON CAN GO BROKE EXPECT THROUGH BORROWED MONEY. ALL BORROWED MONEY DOES IS, IT MAY HELP YOU GET IT A LITTLE FASTER, BUT IT CAN HELP YOU GET POORER A WHOLE LOT FASTER. YOU MAKE DECENT INVESTMENTS IN THINGS YOU UNDERSTAND AT ATTRACTIVE PRICES AND YOU'LL DO WELL OVER TIME.

Quick: MR. BUFFETT, WE HAVE HEARD FROM PLENTY OF PEOPLE WHO HAVE WRITTEN US AND CALLED IT AND SAID THEY'RE AGAINST THIS RESCUE PLAN BECAUSE THEY THINK IT'S A BAILOUT FOR WALL STREET . YOU'VE COME OUT IN FAVOR, BUT HOW WOULD YOU EXPLAIN THIS TO THE AVERAGE AMERICAN WHO DOESN'T HAVE A LOT INVESTED IN THE STOCK MARKET. WHAT DO THEY HAVE AT STAKE?

Buffett: THERE IS NO QUESTION THIS IS A RESCUE PLAN, BUT IT'S A RESCUE PLAN FOR THE AMERICAN ECONOMY NOT WALL STREET. IF YOU LOOK ATT HE PEOPLE AT LEHMAN OR BEAR STEARNS OR AIG, THE SHAREHOLDERS HAVE GOTTEN KILLED AND A LOT OF THE PEOPLE ARE LOSING JOBS OR LOSING BONUSES AND ALL KIND OF THINGS. THIS IS DESIGNED TO HELP THE AMERICAN ECONOMY FROM GOING INTO THE ULTIMATE TAIL SPIN, BUT WHEN CREDIT IS FROZEN AND WHEN BANKS ARE UNWILLING TO LEND TO EACH OTHER AND 8% OF DEPOSITS IN AMERICAN BANKS HAVE BEEN MOVED -- THESE ARE -- THIS IS AN ECONOMIC PEARL HARBOR AND ONLY THE WHOLE WORLD WANTS TO DELEVERAGE.THE ONLY ENTITY IN THE WORLD THAT CAN LEVERAGE UP TO MATCH THAT FORCE IS THE U.S. TREASURY. THEY ARE NOT DOING THIS FOR WALLSTREET. THIS IS BEING DONE FOR THE AMERICAN ECONOMY.

Quick: IF YOU HAD ONE MESSAGE TO THE SENATORS WHO ARE GOING TO BE LIKELY VOTING TONIGHT ON THIS BILL?

Buffett: VOTE FOR WHAT'S IN THE INTEREST OF THE UNITED STATES CITIZENS AND I THINK A MAJORITY, A SUBSTANTIAL MAJORITY WILL COME OUT ON THE SIDE OF VOTING FOR IT.

Quick: WE WANT TO THANK YOU VERY MUCH FOR YOUR TIME. WE APPRECIATE YOUR TIME AND HOPE TO TALK TO YOU AGAIN SOON.

Buffett: THE GE ENGINES ARE PERFORMING MAGNIFICENTLY ON THIS PLANE.

Quick: THAT'S GOOD TO KNOW. THANK YOU VERY MUCH, WARREN.

Related Posts :

1. Buffett : Economy 'on Floor' After Cardiac Arrest (Update1)
2. Soros : Paulson's Financial-Rescue Plan Is `Ill-Conceived'
3. VIX 20 Year History
4. Warren Buffett Reveals Bailout's Dirty Little Secret
5. Buffett On The Bailout: The CNBC Interview
6. Goldman and Buffett: Salvation or Desperation?

Please Note!
This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer on the bottom for more information.

You are welcome to republish this article, or any portion thereof.
Please, cite the actual/original source. I would be grateful if you could link back.

Buffett : Economy 'on Floor' After Cardiac Arrest (Update1)

By Erik Holm and Andrew Frye
Bloomberg, October 1, 2008 19:28 EDT

Oct. 1 (Bloomberg) -- Billionaire Warren Buffett, the world's preeminent stock picker, said the U.S. economy is ``flat on the floor'' after a cardiac arrest as companies struggle to secure funding and unemployment increases.

``In my adult lifetime I don't think I've ever seen people as fearful, economically, as they are now,'' Buffett said today in an interview with Charlie Rose to be broadcast tonight on PBS. ``The economy is going to be getting worse for a while.''

The biggest housing slump since the Depression has spurred a wave of defaults and a yearlong contraction in global credit markets, squeezing companies' capacity for investment. Buffett's Berkshire Hathaway Inc., based in Omaha, Nebraska, agreed in the past two weeks to buy $8 billion in preferred shares from General Electric Co. and Goldman Sachs Group Inc. to help the companies fund their businesses.

The credit freeze is ``sucking blood'' from the U.S. economy, Buffett said.

The bankruptcy of Lehman Brothers Holdings Inc. and Washington Mutual Inc., and the emergency sales of Merrill Lynch & Co. and Wachovia Corp. fueled fears about the vulnerability of firms that rely on capital markets for short-term funding.

Buffett is taking advantage of fragile stock markets, the lack of available credit and his own reputation as a picker of successful companies to extract outsized payments for Berkshire's cash and endorsement. He has told shareholders that his strategy is to be ``greedy when others are fearful.''

`Seizing Opportunity'

``He's seizing the opportunity,'' said Tom Kersting, an analyst for Edward Jones & Co in St. Louis. ``His philosophy is always to keep some powder dry. That allows him to take advantage of the current turmoil we're in and take advantage when others can't.''

For both Goldman and GE, Buffett's endorsement comes with a cost. Both companies agreed to pay Berkshire a 10 percent dividend on his preferred shares, and each gave him warrants to buy their common stock at any point in the next five years at a price that's a discount to where it's currently trading.

Related Posts :

1. Soros : Paulson's Financial-Rescue Plan Is `Ill-Conceived'
2. VIX 20 Year History
3. Warren Buffett Reveals Bailout's Dirty Little Secret
4. Buffett On The Bailout: The CNBC Interview
5. Goldman and Buffett: Salvation or Desperation?

Please Note!
This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer on the bottom for more information.

You are welcome to republish this article, or any portion thereof.
Please, cite the actual/original source. I would be grateful if you could link back.

Soros : Paulson's Financial-Rescue Plan Is `Ill-Conceived'

By Katherine Burton and Matthew Benjamin
Bloomberg

Oct. 1 (Bloomberg) -- Billionaire investor George Soros said the U.S. should inject equity into banks rather than buy their bad debts as proposed by Treasury Secretary Henry Paulson in his financial-rescue package.

``The plan is ill-conceived or not conceived at all,'' Soros said today in a telephone interview, calling the current credit meltdown ``the crisis of a lifetime.''

Paulson would allocate as much as $700 billion to purchase distressed securities from banks, freeing up capital for lending that would help stabilize financial markets. The House of Representatives rejected the package on Sept. 29. The Senate is set to vote today on legislation that links the plan to an increase in bank-deposit-insurance limits and tax breaks. The House will likely take action in two days.

``The Treasury should rely on the Federal Reserve and the bank examiners to establish what equity each bank needs,'' said Soros, chairman of Soros Fund Management LLC, a New York-based hedge-fund firm with $20 billion in assets. The examiners would end up declaring some banks insolvent.

Soros, 78, proposed that banks first try to raise capital from private investors. As needed, the government would inject additional cash into the banks in exchange for preferred stock with warrants or convertible bonds. Existing shareholders would also be given the right to subscribe to the new securities, and could sell their rights to others.

``If administered properly, this recapitalization would be enough to let the banks lend again,'' he said.

Paulson's plan is flawed because the banks' bad debt is hard to value, and to make the plan work the Treasury would have to overpay for the securities, Soros said.

Paulson ``has been reactive and not proactive, and he's made a number of U-turns, but he's the best we have right now,'' said Soros when asked about the job Paulson has done in handling the crisis.


Related Posts :

1. VIX 20 Year History
2. What am I so afraid of?
3. House Rejects $700 Bn Financial Bailout
4. Dollar Rally Could be Short Lived

Please Note!
This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer on the bottom for more information.

You are welcome to republish this article, or any portion thereof.
Please, cite the actual/original source. I would be grateful if you could link back.

VIX 20 Year History

From The Big Picture :

Maoxian looks at a 20 year history of VIX spikes through the 50 level.

He likes what he sees:

Source:
Historical Look at the Volatility Index
Maoxian, September 30, 2008
http://maoxian.com/archive/historical-look-at-the-volatility-index/

Related Posts :

1. What am I so afraid of?
2. Front Page Crash Coverage
3. 6.875%: LIBOR Tags All Time High

Please Note!
This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer on the bottom for more information.

You are welcome to republish this article, or any portion thereof.
Please, cite the actual/original source. I would be grateful if you could link back.

What am I so afraid of?

From Megan McArdle :

Tyler Cowen lays it out:


The best case scenario: The bad banks continue to be bought up, there is no run on hedge funds next Tuesday, only mid-sized European banks fail, money market funds keep on buying commercial paper, and the Fed and Treasury continue to operate on a case-by-case basis. Since Congress doesn't have to vote for something called "a bailout," it can give Paulson and Bernanke more operational freedom than they would have otherwise had. The American economy is in recession for two years and unemployment does not rise above eight or nine percent.

The worst case scenario: Credit markets freeze up within the next week and many businesses cannot meet their payrolls. Margin calls cannot be met and the NYSE shuts down for a week. Hardly anyone can get a mortgage so most home prices end up undefined rather than low. There is an emergency de facto nationalization of banks to keep the payments system moving. The Paulson plan is seen as a lost paradise. There is no one to buy up the busted hedge funds, so government and the taxpayer end up holding the bag. The quasi-nationalized banks are asked to serve political ends and it proves hard to recapitalize them in private hands. In the very worst case scenario, the Chinese bubble bursts too.

Tyler notes "I still think some version of the best case scenario is more plausible, but I wish I could tell you I am sure."

I'm not sure I have a good p-value on the worst case scenario. More importantly, I'm not sure how to weight risks with small probabilities but catastrophic consequences--an issue we've been struggling with in assessing climate change action, among other economic policy questions of the day. If there's a 5% chance of the above scenario, how much should we be willing to pay to avoid that risk?

It is worth noting, in answer to the libertarians who are wary of government intervention in the economy, that if there is a serious crash, we will get even more government intervention in the economy--and intervention that is much less to our liking. That cost has to be weighed in your assessment. On the other side, to those who are averse to bailing out Wall Street rather than Main Street, it's worth noting that Main Street will suffer worse than Wall Street. Because of the way that their compensation is structured, Wall Street bankers tend to do things like buy their houses for cash.

Related Posts :

1. National Debt to Exceed $10 Trillion Tomorrow
2. Inflation, Deflation, Money Velocity and Gold
3. Front Page Crash Coverage
4. 6.875%: LIBOR Tags All Time High
5. Roubini: Risk of Financial Armageddon As High As Ever

Please Note!
This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer on the bottom for more information.

You are welcome to republish this article, or any portion thereof.
Please, cite the actual/original source. I would be grateful if you could link back.

National Debt to Exceed $10 Trillion Tomorrow

From CalculatedRisk :

It now looks like the National Debt will be over $10 Trillion tomorrow.

As of Sept 29th, the debt was $9,945,578,231,981.59

The surge in the National Debt over the last two weeks has been because of the Supplementary Financing Program (SFP) with the Treasury raising cash for the Fed's liquidity initiatives (announced a couple of weeks ago).

Today the Treasury sold $45 billion in 15 day Cash Management Bills that are all for the Fed. Tomorrow the Treasury will sell $50 billion in 42 day bills also for the Fed. And that Wednesday auction should put the National Debt over the $10 Trillion mark (we will know on Thursday).

For good measure, the Treasury is also selling another $45 billion for the Fed on Thursday.

The good news is the borrowing rates are pretty low!

Even though this rapid increase in the debt is being driven by the Fed's liquidity initiatives (and should be paid back), crossing $10 trillion will still be quite a milestone ...

Related Posts :

1. House Rejects $700 Bn Financial Bailout
2. Dollar Rally Could be Short Lived
3. Buying $700 Bn In Troubled Assets With Taxpayer Money

Please Note!
This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer on the bottom for more information.

You are welcome to republish this article, or any portion thereof.
Please, cite the actual/original source. I would be grateful if you could link back.

Inflation, Deflation, Money Velocity and Gold

From The Financial Ninja :

Click to Enlarge

From David Rosenberg at Merril Lynch (now Bank of America) today:

"Money supply will increase but money velocity will not"

We are getting asked repeatedly these days how it is that the government debt creation we are about to see is not going to be inflationary. After all, aren’t we going to see a boom in the money supply? Well, we’re sure that the money supply is going to increase, but at the same time, we are going to see the turnover rate of that money, or what is called money velocity, decline. This is exactly what happened in that 1989-93 period when the Fed massively reflated. Money velocity contracted 13% and this is the reason why the inflation rate was cut in half that cycle and bond yields rallied 400 basis points, though no doubt that downtrend in yields was punctuated by intermittent corrections – as we’ve seen take place in the Treasury market over the past week."

In Gold, Oil, PMs: More Hedgies Get Whacked I wrote:

“Forget about oil demand from the BRIC countries. The whole globe is grinding to a halt. Believe it.

Forget about inflation. There has never been in the history of the world an inflationary run while land prices were declining. The amount of debt being destroyed as the monster of a debt bubbles implodes will suck down all asset prices and just absolutely collapse the velocity of money.

Factor in some serious de-leveraging by every single kind of market participant, and there is no way commodities can resume their ‘secular Bull market’ for years to come.

Take a look at copper for example. Copper just smashed through a multi-year trend line after putting in a long topping formation. Since 2006 prices have been hitting the same highs and getting rejected. This break down is of utmost importance.

Game over.

I’m firmly in the deflationist camp.”

As soon as the fear and panic subsides, the easy money will be made SMASHING gold short as people finally realize that inflation is what we HAD and that deflation is what we will HAVE.

Related Posts :

1. Front Page Crash Coverage
2. 6.875%: LIBOR Tags All Time High
3. House Rejects $700 Bn Financial Bailout

Please Note!
This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer on the bottom for more information.

You are welcome to republish this article, or any portion thereof.
Please, cite the actual/original source. I would be grateful if you could link back.

Front Page Crash Coverage

From The Big Picture

Interesting front page coverage of yesterday's market action :









Related Posts :

1. Roubini: Risk of Financial Armageddon As High As Ever
2. House Rejects $700 Bn Financial Bailout
3. Fed Pumps Further $630 Billion Into Financial System

Please Note!
This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer on the bottom for more information.

You are welcome to republish this article, or any portion thereof.
Please, cite the actual/original source. I would be grateful if you could link back.