Bailout plan risks prolonging recession 2 Oct 2008 The US plan to rescue ailing banks will invest up to $700bn in distressed mortgagerelated securities and other loans. In a credit crunch, that will crowd out others more deserving of funding. That could deepen the economic slowdown, and is certainly likely to extend it.
US Senate passes Tarp with side of sausage 2 Oct 2008 After the shock rejection of Paulson s $700bn bailout, the wide Senate majority offers some succour to investors craving action. But the House could still say no again. The bill is weighed down with a barrel of pork and last week s rescues show other solutions are possible.
Commercial paper makes ominous grinding sounds 2 Oct 2008 The market for shortterm debt saw a record fall in issuance last week. The market simply isn t open to weak companies or for long maturities. One factor Treasury issuance crowding out corporate borrowers could prolong the pain.
Fat finger fiascos flourish in volatile markets 1 Oct 2008 Google s stock swung $200 per share in minutes yesterday due to erroneous orders . Such errors can be expected in small and illiquid stocks. But automated strategies now direct huge pools of money. Throw in market panic, and problems can beset even market giants.
GE’s infusion doesn’t address structural problem 1 Oct 2008 The $15bn, including $3bn from Warren Buffett, puts to rest any liquidity concerns following its last profit warning. But investors are still left with a blackbox attached to an industrial group. The capital should be used to shore up GE Capital in advance of a divorce.
Crisis calls for deposit guarantees 1 Oct 2008 Right now, even the whiff of a suggestion that deposits aren t rock solid can lead to a run on a bank. US and British authorities need to stop dithering and follow the Irish and French by guaranteeing virtually all deposits, argue Hugo Dixon and Rob Cox.
Limit stock exchange closings to disasters 1 Oct 2008 Russia closed its stock exchange three times in recent weeks to stem price declines. That s not seriously out of line the NYSE has circuitbreakers too. But they should be used sparingly. Price discovery needs to be as continuous as possible for markets to adjust.
Buffett’s investments aren’t regular stock tips 1 Oct 2008 Sure, the legendary investor's multibillion dollar bets on Goldman Sachs and General Electric are good for sentiment around those companies and generally. But Buffett's deals earn 10% every year even if the companies' common stock never gains much.
Failed $12.8bn road deal bodes ill for US infrastructure 1 Oct 2008 Thanks to dithering by Pennsylvania s lawmakers, the $12.8bn offer by Spain s Abertis and Citi to operate the state's Turnpike has slipped away. The fact they couldn t even muster a vote on this pot of gold could present problems for other US infrastructure deals.
Olivant’s woes show need for stock ownership reform 1 Oct 2008 The activist investor thought it owned a 2.78% stake in UBS. But it was lodged with Lehman Brothers, and now can t be found. Olivant can t vote the shares. Others are likely to face similar problems. The rules should be tightened up.
Falling house prices pull Wall St deeper into mire 30 Sep 2008 While Washington and New York obsess over alleviating symptoms of the credit crunch, the underlying cause of the crisis the housing market festers. Prices continued to fall in July and are now 20% off the peak according to the CaseShiller index. There s further to go.
US could buy banks’ preferred stock 30 Sep 2008 The Tarp plan did not help banks directly, raised asset valuation problems and was very costly. A fund investing in the preferred stock of operationally solid banks could supply capital directly, and would probably be cheaper, economically sounder and less risky for taxpayers.
Merger arbs look at $32bn of opportunity 30 Sep 2008 That s the gap between current and offered value in a dozen big pending deals. In half, the spread is wider than 10%. But in chaotic markets, big deals think financials or Genentech and Lonmin may not close. It s an opportunity, but merger arbs are having trouble playing.
Banks scramble to head off company defaults 30 Sep 2008 With markets closed and over $40bn of US junkrated debt coming due in the next year, corporate defaults are set to spike. Banks are deluged with requests to amend loans. But giving troubled borrowers more breathing room could backfire.
Apollo’s Huntsman debacle could have pain for all 30 Sep 2008 A Delaware court said Apolloowned Hexion can t walk away from its $11bn deal to buy the rival chemical company. Apollo says the combined group would be insolvent. Huntsman disagrees. But Apollo s investors and possibly its banks could take a shellacking in either case.
Fed’s liquidity tsunami will be hard to mop up 29 Sep 2008 Bernanke has cranked open his credit taps to the tune of $630bn. The failure of Paulson s bailout and the persistently frozen interbank markets may make this largesse look necessary. But it could be a long time before the Fed can wean markets off it.
Tarp failure not a complete catastrophe 29 Sep 2008 Investors may have freaked out. But the rescues of Wachovia, WaMu plus recaps of Goldman, Morgan Stanley and others suggest there may be other solutions that involve existing mechanisms and the free market.
Revolving loans could boomerang on banks 29 Sep 2008 Banks have committed up to $6 trillion in loans that haven't been drawn, according to Citigroup research. A large drawdown may not hurt too much borrowed funds are likely to be deposited with banks. But a deep freeze in the commercial paper market could turn the loans toxic.
Neuberger buyers get a steal – that may haunt them 29 Sep 2008 Bain and Hellman bought the asset manager for $2.2bn, a third less than the mooted price a few months ago and even below what Lehman paid in 2003. That sounds like a bargain, but it doesn t bode well for the valuations of other fund managers including Neuberger s buyers.
Who should run Treasury’s $700bn bailout fund? 25 Sep 2008 Asset managers like Bill Gross, investment bank honchos and even businessmen like Mike Bloomberg may be too conflicted for the top job. A university endowment figure, like Harvard's Edward Forst or Yale's David Swensen, could be a better choice.