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| User Info | Paulson did the 1st step of giving it away in forum [FedUp] | |||
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Yaldor Posts: 1430 Incept: 2008-05-17 
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This is from a friend - sorry I did not clarify it initially: If this would work he will be even more careless with the rest of the money. How come Buffett get 10% rate from Gs and the tax payers only get 5% ? How many warrents (options) Buffet got and how much did the tax payers ? PLEASE do the math. If the warrants are truly worth what they are represented to be (15% of principal) then the amount invested as preferred is 90% of nominal. If $25B of preferred goes into B then really $21.25B is allocable to the preferred. That means the 5% accreting to 9% should be measured relative to the 85% notional principal allocated. For the first years when its below 9%, we can ROUGHLY assume the deficit interest below 9% compensates for the net present value of the warrant (close enough). So for arithmetic purposes, this is a perpetuity at 9%. It is worth more or less than its face value depending whether the applicable discount rate for very long term investments of equivalent risk profile is less or more than 9%. Right now, arguably, said discount rate is about 15%? Anybody? I assume we'd have to use something around B or CCC. Thus we wuz robbed. We're putting in $X and getting back paper worth maybe 1/2 $X. BUT, if you believe that TOO BIG TO FAIL was always and will always be baked in the cake, you might use a different discount rate. For me, given what Buffett got and given the realities, this is a free contribution amounting to almost 1/2 of 85% of $250B. Incidentally, we were taught this math in 6th grade public schools when schools were schools: Value of a perpetuity: Present Value = Annual Pmt / Discount Therefore, 9% perpetual paper is worth aobut 9/15 of its present value, said present value being whatever the warrants arent worth (I believe 85%?). So we just gave away 6/15 or more of 85% of $250B. As in GAVE IT AWAY. VERY SERIOUSLY, I am a quantitative tax lawyer I specialize in this stuff including valuations of private placement securities and I guarantee you this is how the govt would value these investments at least for federal income tax purposes: if its preferred and not debt and its a near-bk business then you better believe you'd be required to presume a 15% comparable return. ---------- For every crash the probability of someone showing that he predicted it is near 1 . For every prediction of an imminent crash the probability of it being correct is almost zero Last modified:
2008-10-16 14:40:56 by yaldor
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Rockford Posts: 733 Incept: 2008-04-19 
San Diego
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thanks, nice info
---------- I'll keep my freedom, my Bible, my guns, my money... you can keep THE CHANGE.
2008-10-15 18:03:12
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Yaldor Posts: 1430 Incept: 2008-05-17
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first they told us we will make a profit. and now: http://www.bloomberg.com/apps/news?pid=2.... ---------- For every crash the probability of someone showing that he predicted it is near 1 . For every prediction of an imminent crash the probability of it being correct is almost zero
2008-10-15 18:07:13
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Weezie Posts: 3601 Incept: 2008-05-19
Obama's personal message to the American people...
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Thank you Yaldor for pointing this out and doing the math.
---------- ---------------------------- Do not write below this line.
2008-10-15 18:09:38
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Pika-steph Posts: 39200 Incept: 2007-09-11
^Why I keep^ fighting; so he is not fighting for nothing.
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I. Want. To. Kill. Someone.
---------- Stop the Looting; Start Prosecuting - http://www.FedUpUSA.org  "America is at that awkward stage. It's too late to work within the system, but too early to shoot the bastards."
2008-10-15 19:18:14
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Nanna Posts: 2630 Incept: 2008-01-20 NY State
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Nobody cuts deals as good as Warren. Get. Over. It. N/
2008-10-15 19:23:11
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Rockford Posts: 733 Incept: 2008-04-19
San Diego
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``It's likely we'll not only get most of the money back, but in some cases actually make a little money,'' he said. ``People aren't going to be able to have a golden parachute as a result of your hard-working money,'' Bush said, referring to executives' severance payments. So which is it do we get most of the money back or actually make a little money (in some cases) I'm looking at the whole not individual pieces. No Golden Parachutes, what are they Platinum? They should have a noose around their neck then jump. ---------- I'll keep my freedom, my Bible, my guns, my money... you can keep THE CHANGE.
2008-10-15 20:09:45
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Yaldor Posts: 1430 Incept: 2008-05-17
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This forum has very little flames and I have never got into a fight here with any one. This however - did get me mad: Quote:Nobody cuts deals as good as Warren. So I want to understand: If warren buffet is a good negotiator this means Paulson van screw the tax payer ? What a lame excuse - people like you who accept everything that comes from the authoreties are the problem. ---------- For every crash the probability of someone showing that he predicted it is near 1 . For every prediction of an imminent crash the probability of it being correct is almost zero
2008-10-16 09:48:44
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Etz3l Posts: 9103 Incept: 2007-06-26
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Paulson didn't get to where he's at by cutting bad deals. He made an excellent deal here, for his pigmen buddies. ---------- Treating the symptoms of financial corruption isn’t the same as removing the causes.
2008-10-16 09:51:55
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Yaldor Posts: 1430 Incept: 2008-05-17
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We must protest this as the next deals for the "bad assets" will be even worse.
---------- For every crash the probability of someone showing that he predicted it is near 1 . For every prediction of an imminent crash the probability of it being correct is almost zero
2008-10-16 10:51:12
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Pika-steph Posts: 39200 Incept: 2007-09-11
^Why I keep^ fighting; so he is not fighting for nothing.
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Quote:Get. Over. It. If by 'get over it' you mean get over what is ocurring to our country, the answer to that is, NO, I won't 'get over it.' I don't give a rat's ass about Warren Buffett. That sort of comment isn't going to be tolerated. Fair warning. ---------- Stop the Looting; Start Prosecuting - http://www.FedUpUSA.org "America is at that awkward stage. It's too late to work within the system, but too early to shoot the bastards."
2008-10-16 11:27:27
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Yaldor Posts: 1430 Incept: 2008-05-17
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Quote:That sort of comment isn't going to be tolerated. Fair warning. Thanks Pika. This indeed was the 1st time I got mad on this forum. Thank you for not tolerating it. We should not "get over it". It is our country, our world. ---------- For every crash the probability of someone showing that he predicted it is near 1 . For every prediction of an imminent crash the probability of it being correct is almost zero
2008-10-16 11:51:50
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Bluebird Posts: 524 Incept: 2008-05-02 
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Yaldor says "So we just gave away 6/15 or more of 85% of $250B." So did Paulson take this money directly form the Treasury to disperse to the banks? Or did he move the money from the Treasury to the FED to the banks? or did he create it out of thin air for the banks and add it directly to the National Debt? or come combination of these? If I want to see these bailouts adding up, where do I look? What government website is tracking these amounts? Thanks!
2008-10-16 13:12:25
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Pika-steph Posts: 39200 Incept: 2007-09-11
^Why I keep^ fighting; so he is not fighting for nothing.
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Well, that's a complicated question - mainly because there are MULTIPLE sites keeping track of this and you have to put it together. Try this thread here: http://www.tickerforum.org/cgi-ticker/ak.... ---------- Stop the Looting; Start Prosecuting - http://www.FedUpUSA.org "America is at that awkward stage. It's too late to work within the system, but too early to shoot the bastards."
2008-10-16 13:14:47
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Bluebird Posts: 524 Incept: 2008-05-02
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Thanks for that link! Lots of good info there.
2008-10-16 13:17:43
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Tesla Posts: 8175 Incept: 2008-04-03
Delaware
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Thanks Yaldor for your insight - just more evidence that these people think this country consists of nobles(them) and serfs(taxpayers). Could you point me to a more complete explanation for a newbie, as I really don't quite understand this: Quote:If the warrants are truly worth what they are represented to be (15% of principal) then the amount invested as preferred is 90% of nominal. TIA ---------- "Neither the wisest Constitution nor the wisest laws will secure the liberty and happiness of a people whose manners are universally corrupt." Samuel Adams I'd rather die on my feet than live on my knees. - Emiliano Zapata
2008-10-16 13:21:02
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Yaldor Posts: 1430 Incept: 2008-05-17
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Tesla, This is from a friend - sorry I did not clarify it initially: The warrent is like a call option. Given the current price of the bank stock, the option price and the duration there is a price for that option. So assuming that price is reduced from the total the remaining is the prefered. If you look at BAC tosday price of about $22.5 and a call option at same price for 2010 is at $6.35 (roughly 25% of current price) so if we invest $10B and we get a warrent for 15% of that aamount i.e. $1.5B - an option for 2010 is about 25% of that amount at current prices . If the option is for longer time the value of the option is higher - there are formulas for those things and they have been used to calcualte what portion of the gift each bank got was for the warrent and the remaining is the prefered. Hope this is clear. I am sorry I did not calrify that it was not me doing the calculation I cut and paste it hastly. ---------- For every crash the probability of someone showing that he predicted it is near 1 . For every prediction of an imminent crash the probability of it being correct is almost zero
2008-10-16 14:47:28
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Exorcism Posts: 301 Incept: 2007-11-30
Denver Area
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Can I use this calculation as written in a letter to my reps?
---------- The fact that we live at the bottom of a deep gravity well, on the surface of a gas covered planet going around a nuclear fireball 90 million miles away and think this to be normal is obviously some indication of how skewed our perspective tends to be. -Douglas Adams
2008-10-16 15:15:51
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Yaldor Posts: 1430 Incept: 2008-05-17
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Sure . I don't see why not. just look up the numbers BUffet got for his GS investment Vs the tax payer Buffet got 10% rate the tax payer get 5% for 5 years and 10% after that. There is a big differnce between the 2. Buffett got options equal to 100% of his investment. the tax payers got 15% ---------- For every crash the probability of someone showing that he predicted it is near 1 . For every prediction of an imminent crash the probability of it being correct is almost zero Last modified:
2008-10-16 15:21:03 by yaldor
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Etz3l Posts: 9103 Incept: 2007-06-26
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Paulson should be fired and prosecuted. http://www.guardian.co.uk/commentisfree/.... Paulson tries again Unlike the UK plan, the revamped American bail-out puts banks first and taxpayers second Gordon Brown has won plaudits over recent days for inspiring the turnaround in Hank Paulson's thinking that saw him progress from his "cash for trash" plan - derided by almost every economist, and many respected financiers - to a capital injection approach. The international pressure brought to bear on America may indeed have contributed to Paulson's volte-face. But Paulson figured he could reshape the UK approach in a way that was even better for America's banks than his original cash strategy. The fact that US taxpayers might get trashed in the process is simply part of the collateral damage that has been a hallmark of the Bush administration. Will this bail-out be enough? We don't know. The banks have engaged in such non-transparency that not even they really know the shape they are in. Every day there are more foreclosures - Paulson's plan did little about that. That means new holes in the balance sheets are being opened up as old holes get filled. There is a consensus that our economic downturn will get worse, much worse; and in every economic downturn, bankruptcies go up. So even if the banks had exercised prudent lending - and we know that many didn't - they would be faced with more losses. Britain showed at least that it still believed in some sort of system of accountability: heads of banks resigned. Nothing like this in the US. Britain understood that it made no sense to pour money into banks and have them pour out money to shareholders. The US only restricted the banks from increasing their dividends. The Treasury has sought to create a picture for the public of toughness, yet behind the scenes it is busy reassuring the banks not to worry, that it's all part of a show to keep voters and Congress placated. What is clear is that we will not have voting shares. Wall Street will have our money, but we will not have a full say in what should be done with it. A glance at the banks' recent track record of managing risk gives taxpayers every reason to be concerned. For all the show of toughness, the details suggest the US taxpayer got a raw deal. There is no comparison with the terms that Warren Buffett secured when he provided capital to Goldman Sachs. Buffett got a warrant - the right to buy in the future at a price that was even below the depressed price at the time. Paulson got for the US a warrant to buy in the future - at whatever the prevailing price at the time. The whole point of the warrant is so we participate in some of the upside, as the economy recovers from the crisis, and as the financial system starts to work. The Paulson plan responded to Congress's demand to have something like a warrant, but as a matter of form, not substance. Buffett got warrants equal to 100% of the value of what he put in. America's taxpayers got just 15%. Moreover, as George Soros has pointed out, in a few years time, when the economy is recovered, the banks shouldn't need to turn to the government for capital. The government should have issued convertible shares that gave the right to the government to automatically share in the gain in share price. Whether we were cheated or not, the banks now have our money. The next Congress will have two major tasks ahead. The first is to make sure that if the taxpayer loses on the deal, financial markets pay. The second is designing new regulations and a new regulatory system. Many in Wall Street have said that this should be postponed to a later date. We have a leaky boat, some argue, we need to fix that first. True, but we also know that there are really problems in the steering mechanism (and the captains who steer it) - if we don't fix those, we will crash on some other rocks before getting into port. Why should anyone have confidence in a banking system which has failed so badly, when nothing is being done to affect incentives? Many of those who urge postponing dealing with the reform of regulations really hope that, once the crisis is passed, business will return to usual, and nothing will be done. That's what happened after the last global financial crisis. There is a hope: the last financial crisis happened in distant regions of the world. Then it was the taxpayers in Thailand, Korea and Indonesia who had to pick up the tab for the financial markets' bad lending; this time it is taxpayers in the US and Europe. They are angry, and well they should be. Hopefully, our democracies are strong enough to overcome the power of money and special interests, and we will prove able to build the new regulatory system that the world needs if we are to have a prosperous and stable global economy in the 21st century. • Joseph E Stiglitz is university professor at Columbia University and recipient of the Nobel memorial prize in economic science in 2001. He was chief economist at the World Bank at the time of the last global financial crisis. ---------- Treating the symptoms of financial corruption isn’t the same as removing the causes.
2008-10-16 15:24:21
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Nanna Posts: 2630 Incept: 2008-01-20 NY State
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Sorry to **** y'all off. However, Warren is an investor, and is money good. Money talks, bull**** walks. Warren has always cut the BEST deals, that's why he's so good. He got cash money when stuff's for sale. That's capitalism folks. What it tells you is that Warren's got more cash on the barrel head than the .govs. Does that surprise you? And, Steph. I'll take my warnings from Gen, if offered, very seriously. N/
2008-10-16 21:08:10
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Genesis Posts: 71432 Incept: 2007-06-26 
KD^2
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Warren is a very wealthy predator. Not that there's anything necessarily wrong with this, but the Untied States is an even wealthier party. That we gave away this money on terms inferior to Warren's is indeed a scam, especially given the discounted value of what Paulson did. That wasn't an equity investment or "help" or "a loan", it was ****, and you're the one who got violated. ---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2008-10-16 21:12:21
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Nanna Posts: 2630 Incept: 2008-01-20 NY State
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It remains to be determined if the broader economic benefit will be greater than the potential haircut on the specific deal. In Warren's case, that wasn't a consideration. Hey, I'm not a cheerleader for the Feds. I despise bankers. I'm just sayin' that don't criticize Warren for being a great investor because Bernanke is a putz/N Last modified:
2008-10-16 21:21:39 by nanna
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Rockford Posts: 733 Incept: 2008-04-19
San Diego
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Ok I have a question, according to the article above a few posts, the warrants Taxpayers got can be exercised at the price at the time of the exercise, From Treasury it seems at the price at the time of issuance of the warrants (or is it time of issuance of the new stock?)20 day average and who thinks treasury will wait till the bank stock prices go up before buying the preferred and warrants? Buffett got a warrant - the right to buy in the future at a price that was even below the depressed price at the time. Paulson got for the US a warrant to buy in the future - at whatever the prevailing price at the time. The whole point of the warrant is so we participate in some of the upside, as the economy recovers from the crisis, and as the financial system starts to work. according to Teasury: The senior preferred shares will qualify as Tier 1 capital and will rank senior to common stock and pari passu, which is at an equal level in the capital structure, with existing preferred shares, other than preferred shares which by their terms rank junior to any other existing preferred shares. The senior preferred shares will pay a cumulative dividend rate of 5 percent per annum for the first five years and will reset to a rate of 9 percent per annum after year five. The senior preferred shares will be non-voting, other than class voting rights on matters that could adversely affect the shares. The senior preferred shares will be callable at par after three years. Prior to the end of three years, the senior preferred may be redeemed with the proceeds from a qualifying equity offering of any Tier 1 perpetual preferred or common stock. Treasury may also transfer the senior preferred shares to a third party at any time. In conjunction with the purchase of senior preferred shares, Treasury will receive warrants to purchase common stock with an aggregate market price equal to 15 percent of the senior preferred investment. The exercise price on the warrants will be the market price of the participating institution's common stock at the time of issuance, calculated on a 20-trading day trailing average. http://www.ustreas.gov/press/releases/hp.... ---------- I'll keep my freedom, my Bible, my guns, my money... you can keep THE CHANGE.
2008-10-16 21:26:04
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Genesis Posts: 71432 Incept: 2007-06-26
KD^2
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I don't think Warren is a particularly great investor. Especially not now. 20 years ago, yes. Today? Not so much. He is just a prick with a big fat wallet who can dictate terms when someone gets in deep ****, and he does so. There's nothing wrong with that but don't mistake bullying for brilliance. ---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2008-10-16 21:26:35
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