Can Someone Explain The Concept of Tough Love to our Government?

Helping Institutions and Ordinary People Invest Better by Focusing on Risk Control

Posted on 16 January 2009 by David Merkel

I’ve said it before, and I’ll say it again, but bailouts must involve significant pain in order to be effective.? The bailout of Bank of America was far too gentle.? Many firms would want capital on those terms.? Bailouts should be an unwanted last resort that preserves stakeholders with priority claims, but destroys equityholders, and other junior claimants.

I’ve submitted many of my policy ideas to the Obama administration, but they haven’t gotten a warm reception.? If any of you would like to vote my ideas up, go ahead and do so here.? Thanks; maybe the Obama administration will prove more open-minded than the Bush, Jr., Administration.

2 thoughts on “Can Someone Explain The Concept of Tough Love to our Government?”

hmf says:

16 January 2009 at 5:47 am

Thoroughly interesting & impressive that you would post on change.gov – I hope your ideas will effect & influence internal debate & Obama administration policy. As always & especially on big news days, your blog is must reading. Btw, I would be very curious to get your take on Paul Krugman’s op-ed in today’s NYT tinyurl.com/6wmjg9 – Thanks a lot!
david foster says:

16 January 2009 at 1:24 pm

Terms sheet refers to $4B in preferred stock…it wasn’t clear whether this stock has to be *purchased* or whether it is given automatically in compensation for the guarantee. Also, what is the seniority of this stock relative to other outstanding preferreds?

Comments are closed.

David Merkel is an investment professional, and like every investment professional, he makes mistakes. David encourages you to do your own independent "due diligence" on any idea that he talks about, because he could be wrong. Nothing written here, at RealMoney, Wall Street All-Stars, or anywhere else David may write is an invitation to buy or sell any particular security; at most, David is handing out educated guesses as to what the markets may do. David is fond of saying, "The markets always find a new way to make a fool out of you," and so he encourages caution in investing. Risk control wins the game in the long run, not bold moves. Even the best strategies of the past fail, sometimes spectacularly, when you least expect it. David is not immune to that, so please understand that any past success of his will be probably be followed by failures. Also, though David runs Aleph Investments, LLC, this blog is not a part of that business. This blog exists to educate investors, and give something back. It is not intended as advertisement for Aleph Investments; David is not soliciting business through it. When David, or a client of David's has an interest in a security mentioned, full disclosure will be given, as has been past practice for all that David does on the web. Disclosure is the breakfast of champions. Additionally, David may occasionally write about accounting, actuarial, insurance, and tax topics, but nothing written here, at RealMoney, or anywhere else is meant to be formal "advice" in those areas. Consult a reputable professional in those areas to get personal, tailored advice that meets the specialized needs that David can have no knowledge of.