Hussman Funds Weekly Market Comment
You Can’t Rescue the Financial System If You Can’t Read a Balance Sheet
This is a bad idea.
However the final legislation is written, the Troubled Assets Relief Program (TARP) being rushed through Congress will evidently be built around its single worst provision, which is that the Treasury will have authority to purchase distressed mortgage securities from U.S. financials.… Buffett’s investment may reflect confidence in Goldman, particularly with a government backstop on whatever questionable assets it does own, but if anything, it suggests that the government should have gone the same route – namely, provide capital in return for a financially viable security that is senior to common shareholder equity, have it accrue a relatively high rate of interest, and allow it to be repaid early (Buffett’s preferred is callable by Goldman) as soon as the financial institution can secure cheaper financing.
Well John got his wish and the bailout was voted down by the US House.
The funny or perhaps sad thing is by not lending $700B the market lost $1,100 billion, or 50% more than the loan.
It looks like we’re in for an exciting week. Have you updated your analysis on your favourite watchlist companies?
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SDA Sadia is a falling knife that I’ll be looking at. Though my time is limited as it is school holidays here and the kids are more fun and less volatile
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