[Vision2020] Why are we bailing out all these large corporations?

[Kenneth Marcy]

On Wednesday 24 September 2008 20:36:57 Andreas Schou wrote:
> What they're worried about is a complete lockdown of banks' ability to
> extend short-term credit, followed by a lockdown of the banks' ability
> to extend long-term credit.
<snip>
> I'm unconvinced, given that Warren Buffet is throwing five billion
> dollars at a financial services company, that it's going to be as bad
> as all that*. But that's the theory.
>
> -- ACS
>
> * Of course, the cynic in me thinks that Buffet may just be taking his
> place at the federal trough. But that seems like a risky bet, given
> that the Bernanke/Paulson proposal appears to be DOA.

I think Buffett sees that Goldman may come out of this with fewer investment 
banking competitors, and thus in a better position to dominate providing its 
services in its reorganized market. Goldman, with fewer competitors, offers 
Buffet, preferred for profits that remain after debt service is satisfied, a 
uniquely safe and strong position in a firm in an industry closely related to 
his own business.

BusinessWeek quotes Richard Bove of Ladenburg Thalmann about Buffett:

"Buffett, Bove says, got an outstanding deal in his investment in Goldman. He 
is taking $5 billion worth of perpetual preferred stock and getting a 10% 
dividend and warrants to buy $5 billion of common stock with a strike price 
of 115 a share. He'll be able to exercise the warrants at any time over five 
years."

http://tinyurl.com/3tqzzb 

Within his ongoing preferred position as described, if Goldman Sachs stays in 
business at anywhere near its former size, Buffett will not need any federal 
trough to do very well with his Goldman investment.


Ken