Comments on: Oppose the Current Bailout Plan, Redux

By: Brandon

Brandon — Thu, 02 Oct 2008 23:00:40 +0000

This government is getting more and more out of control. I read today that they might freeze all banking activities for a week. How would we get money to eat?? The article was here http://www.gotoguy.com/?p=367

By: Josh Kalish

Josh Kalish — Thu, 02 Oct 2008 20:27:52 +0000

I agree with you in general, but I really don’t like the idea of the government owning all kinds of warrants, preferreds, etc in public companies. I think it’s a lot better to just own them in receivership or conservatorship until they can be sold off. The politicians will make a tremendous mess of things that way.

IMHO, you are spot on. Let the Fed step into the CP market for AA firms through anonymous brokers. A small bit of buying at the margin (and at Buttonwood worthy rates) will stem any panic.

By: Jeff

Jeff — Thu, 02 Oct 2008 15:06:25 +0000

David — As you know, I read all of your work. I am surprised that you think we have enough experience with bailouts to use the word “statistically.” The only way to analyze this particular policy is to look at the specifics.

There is no way to analyze a proposition without reference to someone’s specific argument. If one does not do that, one winds up creating straw men. Bill Gross has a very specific argument about the difference between expected return and borrowing costs. Buffett’s is similar. Both are published and neither would be offended if we took issue with their conclusions (assuming they even noticed!)

This is assuming that making a transactional profit is even the right question…..

By: Steve

Steve — Thu, 02 Oct 2008 14:08:50 +0000

Unfortunately Congress isn’t listening to you. Would it not be beter to swallow this pill then risk a depression like collapse. This is a socialistic pill to be sure, but if we have a collapse the new president and Congress may be incentivized to pass a much bigger brand of “New Deal” socialism. It goes from worse to worser.

By: Milt

Milt — Thu, 02 Oct 2008 13:57:03 +0000

David.

Could you say some words about your views regarding stocks in view of a world wide recession?

I’m reading various and opposing views and all of which take into account the $700B bailout: great time to start buying. Say 40 to 60% investment. Market is putting in a bottom. Market discounts 6 months ahead, so buy now. Instead of going into sectors I’ll just show some stocks: WAG, WAT, DEO, MSFT, IWP, Japanese companies.

Other view point is that the stock market has not priced in a recession yet, so wait, till Nov.

And then the worst views recession will be deeper and longer than we’ve seen in a long time. Don’t look to buy till Dow breaks 10k, maybe even 9k.

By: David Merkel

David Merkel — Thu, 02 Oct 2008 05:01:51 +0000

Jeff, If you’ve read my prior posts on the topic, I have cited the studies on bailouts, and how few of them make money. Statistically, the odds are poor. I have also pointed out the difficulties of reverse auctions on diverse and thin assets classes. I don’t like to name names, that is usually not my style. There are enough making the argument as a class that I can refer to them generically.

Vincent — good point. Yes, it would scare off private investors, but marginally capitalized companies will already have scared them off.

By: Jeff

Jeff — Thu, 02 Oct 2008 04:43:05 +0000

Instead of citing “foolish people” in the abstract, why not directly analyze the public comments of Bill Gross and Warren Buffett?

Just a suggestion….

By: Vincent

Vincent — Wed, 01 Oct 2008 17:48:14 +0000

David:

Don’t you think that if the government start taking super senior equity stake (which started already) will scare off private investors?

By: Eric

Eric — Wed, 01 Oct 2008 13:51:03 +0000

“Don’t listen to foolish people who say we can make money off of the bailout.” FYI, Cramer has been pushing the bailout for precisely that reason. ergo…Cramer = Foolish

By: JV DeLong

JV DeLong — Wed, 01 Oct 2008 13:37:31 +0000

David – I appreciate your work immensely, so I am happy to see that you are interested in Hussman’s idea of Superbonds. My two cents is on TCSDaily. http://www.tcsdaily.com/article.aspx?id=093008C

The point that bothers me is Kenneth Rogoff’s comment on how bloated the financial sector has become – 4% of GDP and 30% of corporate profits. To what degree are the bailout proposals necessary for the nation, and to what extent are they an effort to sustain an unsustainable business model?