Epiphanyblog

All about ideas…

A different type of rescue/stabilization plan

with 2 comments

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.

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Written by Valerie Curl

October 1, 2008 at 6:18 PM

2 Responses

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  1. Great idea, though the extortion scheme that the financial institutions and the Administration are pushing will push the problem on to the next administration. That’s really what they are hoping happens. It’s the financial version of the old child’s game ‘hot potato’.

    Fear is the great motivator here and if there is anything this administration has mastered, it’s making people fear ghosts.

    Rick S

    October 1, 2008 at 6:27 PM

  2. I saw Andrew Sorkin on Charlie Rose last night. I think he is weening himself off being a Wall St apologist as he too has come to realize the bankers’ folly (presumptuousness) in fighting attempts to regulate the industry so the crisis of 2008 doesn’t happen again. In case you are interested, I have just posted a piece based on his discussion.

    euandus

    October 20, 2009 at 9:52 AM


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