"You can do a lot of damage on Wall Street with a pen and a piece of paper."
Warren Buffett
"What Buffett has done is provide the government a roadmap to how to invest in struggling banks."
Aaron Task paraphrasing Larry White
"If I were Bush, McCain, or Obama (all three of them ideally) I’d send
Paulson and Bernake to their cubicile and tell them to do the numbers
and come back with the return projections before voting on this."
This is a special triple quote of the week but we are experiencing special times.
What Buffett did with his Goldman investment was get a 10% yield on preferred stock with 100% warrant coverage to buy common stock at an 8% discount on the stock price the day before the deal closed with some corporate oversight. Sounds like a good structure to me and one our government should follow going forward on any bailout.
What Fred is suggesting in his post are two things that any venture capitalist does in practice. Before doing the deal running the numbers establishing an expected value to determine if the deal should be done and if so tranche the payments.
Combine these together and I think you have we have a winner. Do you?