UnThreaded | Threaded | Whole Thread (10) | Ignore Thread Prev | Next
Author: WatchingTheHerd Big red star, 1000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 461686  
Subject: Re: Ranks of optimists swell by 50% Date: 9/24/2008 11:09 PM
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Recommendations: 4
I'd love to buy a solid company with an approximately 17% (depending on how you calculate the value of the warrants) annualized return, in perpetuity.

I mean, yeah, Warren's confident they're not going bankrupt, so that's nice I guess--getting a junk-bond yield on a good franchise.


=====================

Exactly.

What would you do if you, and you alone, suddenly were able to buy Treasury Bills paying 10% when everyone else could only get 1.5%?

That's effectively what Berkshire just did.

The Fed decision to allow GS and MS to be reclassified provides explicit permission for them to partake of the Fed's sippy cup of cash which essentially means the government and Fed have deemed them too big to fail.

That means under virtually any larger meltdown scenario, they will be kept on enough government life support to never risk missing bond payments to...

...Berkshire.

And for being available with the right amount of cash at the right time, the prostrate bank had to offer up warrants to Berkshire which pose no downside to Berkshire but a huge upside if the firm somehow stages a recovery.

With deals structured like this, Berkshire carries none of the risk of any remaining junk in their trunk. I suspect WEB and CM would have no trouble letting the other banks go bankrupt and culling out the worthwhile assets out of bankruptcy rather than taking a pure equity position in overgrown banks buried in paper that hasn't been accurately valued for three years.


WTH
Post New | Post Reply | Reply Later | Create Poll Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (10) | Ignore Thread Prev | Next

Announcements

Pencils of Promise - Back to School Drive
"Pencils of Promise works with communities across the globe to build schools and create programs that provide education opportunities for children."
Post of the Day:
Berkshire Hathaway

Berkshire Beyond Buffett Event
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement