Of foxes and chicken coops

Explosion

Explosion

As I read, and keep on reading –we are living through a historic event–, it does not cease to amaze me how well aligned is the book with the talk. And, it is a relevant discussion point because it would seem that we have the fox in charge of the chicken coop…

Don’t I recall Mr. Paulson getting a compensation of Goldman Sach shares in the $100s of millions?
If GS fails he would stand to get a substantial haircut, or wouldnt he?

Update 09/29/2008: According to this article, Mr. Paulson sold the lion’s share of his GS holdings, about $492 million, at about the date of his confirmation; keeping for himself:

  • 494,054 restricted shares of common stock (worth $60 million roughly at this moment’s $122.75 share price), all of which are vested and deliverable,
  • plus, options to buy –at an unknown price– 680,474 shares of common stock, all of which are exercisable.
           

Now, contrast the views of these other two gurus of finance:

Jim Roger, in essence, says here that nothing should be done, that we should let the markets take their course, that the bankruptcies, recession, and cleanup is the healthy way to revitalize our future growth. If not, we would stand to live the Japanese stagnation of the 90s. And he recognizes, to hold a short position in investment banks.

On the other hand, Warren Buffet, the sage of Omaha, recommends here to follow the Paulson bailout proposal, with a little homework, sell a few to get a feel and then buy the toxic waste at the newly discovered market price. Mr. Buffet has a long position in investment banking, he just bought $5 billion worth of GS prefered stock with a very favorable yearly 16% interest rate.

So, if the bailout plan needs to be tossed out the window to write a new one, as the republican have done, please do so, by all means.

Now, somebody has to come up with some sensible solution.

We’re all sitting on top of $62 trillion credit default swap pile of firecrackers, which we all know have no backing. So, if the economy continues to sink, faltering companies debts will trigger the request to cover these default debts, which, as I’ve said are uncovered, hence, lighting up one hell of a new year’s spectacle.

Oh! I forgot to mention that the basement of our economy also has some other interesting flammables, like subprime mortgages and credit card debt, which will guarantee an unforgettable scene –if your not too close to get blown away with it!