A different type of rescue/stabilization plan
Mort Zuckerman of US News & World Report and Andrew Ross Sorkin of the NY Times, both financial writers, were on the Charlie Rose Show this evening. They offered up a different plan to the Paulson plan. They suggested the Federal Government do what Warren Buffett did with Goldman Sachs.
In a story today at US News, Katy Marquardt writes:
Last week’s deal with Goldman Sachs was a classic Buffett maneuver. The terms are quite cushy: Berkshire is buying $5 billion in perpetual preferred stock, the shares of which will pay a 10 percent annual dividend, or $500 million per year. Therein lies Buffett’s safety net (if a company goes belly up, preferred stockholders stand first in line for dividends and profits). “Remember, he’s got a cushion as a preferred stakeholder…so he doesn’t lose a penny until all of the money is wiped out,” says Bruce Berkowitz of the Fairholme Fund, which has long maintained Berkshire Hathaway as a top holding.
In other words, the feds could buy preferred stock from banks holding distressed paper. Then, let the banks figure out how to deal with it rather than the Fed. government having to figure out an accurate value purchase price and then doing a reverse auction.
I wonder if their idea would work? It sounds like it would be a great deal simpler.