Comments on: Hedge Funds Take Big Losses Due to Lehman Collapse

By: buermann

buermann — Mon, 29 Sep 2008 05:59:00 +0000

Woops, how’d this end up in this thread.

By: buermann

buermann — Mon, 29 Sep 2008 05:57:00 +0000

From the intro remarks of the call:

It requires us to take warrants at the Secretary's discretion ... in the direct case [i.e. a seizure of a failing institution] we will be very aggressive in taking warrants for the taxpayer benefit. ... Companies that sell over $100 million dollars into this fund must give warrants.

The warrants we can set at whatever level we want to set, it's not specified. We want to set that at a level so there is some upside for the taxpayers, but also encourages all firms to participate. This goes back to the spirit that we don't want just failing institutions to participate but also healthy firms to participate. Having that discretion was very very important to us.

So, I guess, healthy firms can come in and take the taxpayer for $100 million with no downside for them and no upside for us. Likewise, while the Treasury will be very aggressive about taking stock options on failing institutions, when healthy institutions come for their checks, the Treasury will set the price of the warrant at whatever level is high enough to keep the firm at the trough.

Sounds like a real win-win to me!

By: Anonymous

Anonymous — Mon, 29 Sep 2008 04:54:00 +0000

Chinese state banks have admitted to holding 300 million (not billion) of LEH bonds. SAFE likely has some as well, but the sum isn’t going to be that large —

bsetser

By: Anonymous

Anonymous — Mon, 29 Sep 2008 01:52:00 +0000

yves,

You can read the article by entering the link in google translate:

http://translate.google.com/translate_t#

Here is a link to the translated page:

http://translate.google.com/translate?u=http%3A%2F%2Fwww.ftd.de%2Funternehmen%2Ffinanzdienstleister%2F%3AFolgen-der-Finanzkrise-Hypo-Real-Estate-droht-Kollaps%2F419518.html&hl=en&ie=UTF-8&sl=de&tl=en

By: Anonymous

Anonymous — Mon, 29 Sep 2008 00:07:00 +0000

The problem:
Mark-to-market accounting.

The solution:
Mark-to-Hank!

By: Yves Smith

Yves Smith — Mon, 29 Sep 2008 00:06:00 +0000

“Stuck positions” was deliberate and I was aware of the double entendre.

By: RK

RK — Sun, 28 Sep 2008 23:39:00 +0000

Thanks bob_in_ma: I haven’t seen the work Millions
in so long I just misread it as Billions.

By: Erich Riesenberg

Erich Riesenberg — Sun, 28 Sep 2008 23:37:00 +0000

I think Buffett is guessing we will inflate our way out of anything, and I would guess he is right. I recall an article he must have written late 70s about how he made a lot of money in nominal terms but due to inflation real term returns were much lower.

Check the BRK AR footnotes for the nominal size of the positions.

By: Anonymous

Anonymous — Sun, 28 Sep 2008 23:32:00 +0000

"It would be amazing if the sage [Buffett] were brought low by the financial crisis, having employing AIG-like strategies in writing insurance on the stock indexes." -- dividedmind

It's looking like a classic "race to the bottom" between Bernanke and Buffett.

At first glance, Bernanke would appear to be light years ahead in the race to liquidation or conservatorship, having trashed his balance sheet to the tune of hundreds of billions in just the last two weeks.

But Buffett, having made an enormous bet in favor of conventional thinking and the government-managed status quo, may yet come from behind and pip young Helo Ben in the stretch.

Godspeed, gentlemen! Just remember -- it's only paper money!

-- Juan Falcone

By: Bob_in_MA

Bob_in_MA — Sun, 28 Sep 2008 23:30:00 +0000

Brad Setser in his most current post indicates that almost 300 billion of Lehman Bonds...

No, $300 million. If it was billion, they would be really po'd!