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Warren Buffett Reveals Bailout's Dirty Little Secret

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dixiegrrrrl Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Sep-27-08 01:00 PM
Original message
Warren Buffett Reveals Bailout's Dirty Little Secret
Paulson is pricing the bad debt shares for far more than they are worth, says Buffett.

The critical part of the bailout is the price the government pays for the trash assets it buys from banks. In short, if the government pays too much, the taxpayers will get hosed.

http://www.clusterstock.com/2008/9/warren-buffett-reveals-bailout-s-dirty-little-secret
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fascisthunter Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Sep-27-08 01:03 PM
Response to Original message
1. Off to the Greatest Page... Paulson Has Some Explaining to Do!!!!
This is why these batars wanted a bill right away. They didn't want folks to have the time to comb over details.....
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trashcanistanista Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Sep-27-08 01:04 PM
Response to Original message
2. Then they need to bring him into the debate.
Have him attend a hearing a and speak his mind. I agree with him.
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LonelyLRLiberal Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Sep-27-08 01:04 PM
Response to Original message
3. We're gonna get hosed . . . . nt
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Uben Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Sep-27-08 01:05 PM
Response to Original message
4. And, he mostly right
....but there is good paper as well as bad. I was gonna bid for it, but I was a few billion short, with high gas prices and all!
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TomInTib Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Sep-27-08 01:07 PM
Response to Original message
5. That overvaluation will be an instant loss, never to be regained.
The same as lighting a pile of money on fire.
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sam sarrha Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Sep-27-08 01:08 PM
Response to Original message
6. they will make 20% reselling the fixed stock.. and all the price of the bad when the market
stabilizes and they are able to sell them at full market value.. all bundled together again

this should not be contracted out, they should contract the paper pushing, hire people, not give away the money
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girl gone mad Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Sep-27-08 01:15 PM
Response to Original message
7. I hope Obama is listening to him.
I know he's an adviser.
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Just-plain-Kathy Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Sep-28-08 07:01 PM
Response to Reply #7
25. That makes me feel a bit better. ..n/t
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Snarkoleptic Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Sep-27-08 01:30 PM
Response to Original message
8. Subprime MBS's are currently selling at around 20 to 35 cents on the dollar.
This plan has us buying this crap at 65 cents on the dollar.
Here's a website with some great MBS background info.
http://www.globalsecuritisation.com/08_GBP/GBP_GSSF08_022_031_DB_US_SubPrm.pdf
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truedelphi Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Sep-28-08 02:25 AM
Response to Reply #8
15. Thank you for posting this, snark
I have a headache thinking these sharks of both parties have just successfully bankrupted our economy and thus SWINDLING our social security (in all senses of the word) out from under us...

So Bush didn't privatize Social Security, but next week, with one swoop of the pen, hw will sign one of the most economically disastrous poicies ever conceived. It reminds me of how the German people were forced into bankruptcy back beginning with the Treaty of Versailles - had WWII not occcurred they would not have paid off the war reparations until the 1980's. And at least that was other nations swindling the Germans. This is our "leaders" swindling us.



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gravity Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Sep-27-08 01:46 PM
Response to Original message
9. Warren Buffett never said that
People are taking Buffett's quotes out of context. He said that the Treasury will make a lot of profit if they buy at the market price. He never said anything about the way Paulson is pricing the assets or that it will result in a loss.

You can price it above market values and still make a profit, just not as much. The crisis is with liquidity, which can depress market values lower than their actual value. Ideally, the government want to come out exactly even on the bailout, since they can help the credit markets and the economy the most without costing the taxpayers a cent.
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Dover Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Sep-27-08 03:59 PM
Response to Reply #9
12. Can you explain this response to the "liquidity crisis"?
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yy4me Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Sep-27-08 01:53 PM
Response to Original message
10. If this or any other bailout goes through, I want stock in the new
company that handles the whole bail out transaction. I want a voice in and a share in whatever comes down the road. As it is now, we will get nothing but if the powers that be form an independent company to handle the money needed for this bail our, we should all get about $2500.00 worth of IOU's out of this. Payable in X years with interest. Better than the CEO's getting it, especially since we are the ones taking the hosing.
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leftofthedial Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Sep-27-08 02:35 PM
Response to Original message
11. that's the whole point.
this isn't a "rescue" or even a "bailout."

It is yet another theft.

the US gummint has become the largest extortion racket in history.
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TBF Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Sep-27-08 05:34 PM
Response to Reply #11
13. In low income neighborhoods it's called looting...
when the US Treasury does it is a "bailout vital to the economy".
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leftofthedial Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Sep-27-08 10:54 PM
Response to Reply #13
14. in some neighborhoods, when committed by certain ethnic groups,
it's called extortion.
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clixtox Donating Member (941 posts) Send PM | Profile | Ignore Sun Sep-28-08 04:28 AM
Response to Reply #14
16. Fascism is another apt word to succinctly describe this confidence racket! N/T


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unblock Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Sep-28-08 08:12 AM
Response to Original message
17. even the original paulson plan called for reverse auctions
well, at least, when he was pressed to explain it. so they've never talked about anything other than "market" prices.

all this comparison to marks is just theoretical, they are guessing whether the market price will be more or less than the marks. but the marks have nothing to do with the process.

the real challenge is to make sure that the reverse auctions are conducted legitimately. any "theft" that occurs would be the result of collusion among holders of mortgages, i.e., if they quietly agree not to underbid each other. given the dynamics, i expect it to be nearly impossible for a properly functioning trust, implicit or otherwise. the companies have too much at stake to save their own hide.
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earth mom Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Sep-28-08 08:52 AM
Response to Original message
18. Told ya it's a rip off of EPIC proportions.
Edited on Sun Sep-28-08 08:53 AM by TheGoldenRule
:argh:

Jeez, what does anyone expect? We are dealing with criminals and gangsters here.
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lonestarnot Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Sep-28-08 09:25 AM
Response to Original message
19. But they have to rush it through and I actually heard that twit Alex on MSNBC say
they need to go home for the Jewish holy days. :wtf:
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lonestarnot Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Sep-28-08 09:30 AM
Response to Original message
20. And why should we pay more than market price! This just gets more fucking absurd with each passing
revelation about this shit! :banghead::argh:
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The Backlash Cometh Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Sep-28-08 10:09 AM
Response to Original message
21. Paulsen needs to be micromanaged.
He's got four patterns, and two faces. I don't trust the bitch.
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TBF Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Sep-28-08 01:52 PM
Response to Reply #21
23. Jail would be a good place to keep an eye on him.
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HamdenRice Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Sep-28-08 10:25 AM
Response to Original message
22. Buffet's main point: The Treasury is going to make a lot of money
I agree with upthread. How on earth can you read this as anything other than Buffet saying that if done right, this is going to make a lot of money for the Treasury:

If> they do <the bailout> right, I think they'll make a lot of money.... They shouldn't buy these debt instruments at what the institutions paid. They shouldn't buy them at what they're carrying, what the carrying value is, necessarily. They should buy them at the kind of prices that are available in the market. People who are buying these instruments in the market are expecting to make 15 to 20 percent on those instruments. If the government makes anything over its cost of borrowing, this deal will come out with a profit. And I would bet it will come out with a profit, actually..

You can be pretty fanciful in marking positions in Wall Street, particularly when things aren't trading. The one thing you want to make sure, when the Treasury is buying things, is the marks they have don't make any difference. Like I said, it wouldn't be a bad idea, if you're buying ten billion of a security and you're the Treasury, to have them sell five-hundred million, or something like that into the market, so you find out what the real market price is and then buy the other 9-1/2 billion at that price. I really think, I really think the Treasury will make -- I think they'll pay back the 700 billion and make a considerable amount of money, if they approach it in that manner.
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John Caelan Donating Member (24 posts) Send PM | Profile | Ignore Sun Sep-28-08 02:51 PM
Response to Original message
24. The Tale of FrankenPaulson & RumpelstiltBen
Once upon a time, in a dimming city on a hill, FrankenPaulson, a sad assemblage of discarded souls, vacuous principles, and excessive skin, stumbled about the grove, lonely and despondent.

All of his magical woodland friends were in dire straits, (not the ‘80s band, but a tenuous state of being). Their magic was exhausted, having been used in excess to build grand castles, moats, and hordes of zombie-like protégés, and a great flood was soon upon them. Imposing edifices had already fallen as the waters approached. They did not know what to do.

So, the great kings of Crimson Hall decided an unusual pairing was necessary, and thus they called upon RumpelstiltBen, well-known for his unique ability to spin gold from straw, in exchange for the souls of the future-born.

“Go into the villages, RumpelstiltBen, and find us, oh, let’s say 300 million or so naïve villagers, and take all of their straw, so that all of it may be spun into gold. You shall have deed against their future-born.”

“The villager’s will resist,” RumpelstiltBen insisted. “How will we take all of their straw when they cling to it so?”

The great kings motioned to a guard, and in walked the towering FrankenPaulson. “Behold, the FrankenPaulson,” the great kings declared. “We have taken pieces from every treacherous henchman who has served us through the millennia and created this.” The great kings winced, assessing the monstrous specimen before them. “We were in a hurry…” they muttered apologetically.

“Go with FrankenPaulson into the villages. They are naïve and easily scared. Tell them that doom is upon them and only by giving up their straw can they be saved from the coming deluge.”

Days later, FrankenPaulson and RumpelstiltBen returned, forlorn and distressed.

“The villagers descended upon us, oh, mighty king,” RumpelstiltsBen declared. “With pitchfork and crude instruments, they drove us off, saying, ‘You may not have our straw to save the woodland creatures. We need it to build our houses and feed our cattle so that we may survive this deluge!”

The great kings glowered at FrankenPaulson. “We’re you not scary enough? Did you not declare crisis and dark forebodings?”

“Yes, sires,” FrankenPaulson groaned. “But they volleyed upon us a new enchantment, one long since not heard, and it drove us back into the woods.”

The great kings seemed dismayed. “What manner of enchantment did these peasants use, our loyal beasts?”

FrankenPaulson lowered his head in shame. “I cannot utter such curses, but they applied both to us and the horses we road in on.”

The great kings considered this, mumbling among themselves. Finally, they turned back to their brave soldiers.

“Go back to the village. Tell the Grand Decider of the village that he must win the people’s cooperation.”

A few days past, the duo returned. Again, the pale hue of failure blanketed their brows. Though arguably, FrankenPaulson always had such a hue.

“The Great Decider of the village spoke, but no one listened.”

“No one?” the kings decried.

“Not a soul, dear kings.”

“We thought he was the Great Decider?” they chided.

“The Villagers hold him in…lesser esteem, great kings.”

The kings huddled again, but soon returned to the Court. “Redirect the swelling river, so that a small portion of the flood is upon them. When an imposing building falls, they will have greater fear and give up their straw.”

The plan was executed and the great edifice Wamoo crumbled into the raging torrent. The villagers watched with dismay. But they continued to mill about with pitchforks chanting curses towards the kings.

“They have not been shaken,” RumpelstiltBen exclaimed. “Do they not see the might of our power? Where are my future-souls? How shall I have sustenance?”

The great kings considered the problem deeply, but soon returned to the halls. “Return, oh diabolical duo, and take counsel with the leaders of the villagers. Promise them reward upon success, and death upon failure. They will ignore the Villagers and collect the straw.”

The pair returned shortly. “The leaders fear the Villagers, oh, lords. For the villagers have pitchforks and stand united.”

Grumbling with frustration, the kings declared, “Return, then, and negotiate with these peasants and their cowering leaders. Do not return until you have struck a deal.”

The Creatures of the Kings and the leaders of the peasants huddled for days in the hallowed halls of the imperial temple. Soon, FrankenPaulson and RumplestiltBen emerged, parchment in hand.

“Behold, great kings, we have formed a deal!” They laid out the parchments before them and the words sprawled across the oak table.

After minutes of consideration, the great kings spoke:

“Is this not the same demand we made at the beginning, but with more words?”

“Yes, sires,” the two replied. "Many more words."

“And do those words have no boundaries, rendering them trivial?”

“Yes, sires.”

“And do we not get all of the straw of the Village, which we will spin into gold, leaving them with the debt of the future-born hanging above them?”

“Yes, sires.”

“And does not the ‘oversight’ preclude courts or law, and renders such imposition minimal because the overseers work for us anyway?”

“Yes, sires.”

The great kings mused among themselves. Finally, they posed a final question.

“What, then, is different about this bargain then the one you initially proposed?”

“Nothing, really, sir.”

“Then what was this all about?” they asked impatiently.

FrankenPaulson rolled his eyes. “Democracy, sires.”

“What manner of king is this, this ‘Democracy’?.”

“A king of a million crowns, your lordships. And they march upon us, in defiance of you, the leaders and Great Decider.”

A dark countenance fell upon the kings. “Ready our legions. As soon as you have collected the straw, render it into gold, for the deluge will sweep away all remaining straw.”

A meek voice cried out from the court. “Then, this will not save the villagers, oh lords?”

The kings seemed chagrined. “Of course, it will not. But soggy straw will not feed the spinning wheel, and no gold can be derived from such. So, we must collect up as much straw as possible before it is swept away.”

The voice in the court considered this revelation. “Perhaps the villagers march, pitchforks in hand, because they know this to be true also, my lords?”

RumpelstiltBen cackled nervously. FrankenPaulson regressed into the shadowy corner. The great kings rose to their feet.

“Perhaps, nameless voice, but we are prepared for such an end.” They motion to the guards who ring a bell. On cue, a dim specter drops from the shadows, unfurling is wings with a furious motion as it alights upon the marble stairs.

The kings smile, confident in their treachery.

“Behold,” their voices boom in unison, as the court trembles. “Count Chertoff…”

To be continued…unfortunately…

http://johncaelan.blogspot.com/2008/09/frankenpaulson-rumpelstiltben-and.html
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NBachers Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Sep-28-08 10:08 PM
Response to Original message
26. So is it buy low and sell high, or buy high and sell low?
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Roland99 Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Sep-28-08 10:10 PM
Response to Original message
27. Didn't Pelosi/Reid say something today about Wall Street paying the shortfall?
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pnwmom Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Sep-28-08 10:46 PM
Response to Original message
28. That was Paulsen's proposed bailout -- this article's dated Sept. 24.
Edited on Sun Sep-28-08 10:47 PM by pnwmom
What is the language in the new document that Obama is now supporting?
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romulusnr Donating Member (186 posts) Send PM | Profile | Ignore Mon Sep-29-08 11:37 AM
Response to Original message
29. any bailout acquisitions
should be done at an automatic discount price, to dampen hosing.

For example if you've got MBSs eating your capital, and you want to be bailed out, you sell them at a 15% discount to the bailout system. Seems to me this would minimize banks taking advantage of the free money, and maximize the potential return on the purchase.

IANAE
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