Commentaries

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Defoliating JC Flowers

William Cohan has a great takedown of J. Christopher Flowers and his struggling private equity firm in Fortune.

The story sheds light on how Flowers lost a good deal of money for his investors over the past few years and how this has tarnished the reputation he earned years ago at Goldman Sachs.

Cohan also does a great job chronicling the Flowers’ publicity machine, which excels at getting him linked in the business press to numerous potential deals. Even though Flowers’ firm never completes many of the deals he’s said to have interest in.

But the most intriguing part of Cohan’s story is Flowers’ claim that he was one of the people who alerted former Treasury Secretary Hank Paulson to the desperate situation facing American International Group a week before Lehman Brothers collapsed. Flowers says he learned of AIG’s terrible plight in early September when the giant insurer reached out to him as potential savior.

from Rolfe Winkler:

Bailout “profit” is taxpayers’ loss

Charging a bank for an implicit government guarantee to absorb losses? According to the Wall Street Journal, the Federal Reserve and Treasury are demanding that Bank of America pay $500 million to exit a bailout deal that was never actually signed.

That's a nice chunk of change, but taxpayers shouldn't be fooled into thinking this -- or any other bailout -- is a good deal.

Recycle the TARP

The U.S. insurance fund for bank deposits is running out of money. At the same time, some of the big institutions that received federal bailouts last fall have repaid more than $70 billion to the Treasury Department, and more checks to the government may be in the mail soon.

Right hand, meet left hand.

Indeed, one way of dealing with this looming crisis at the Federal Deposit Insurance Corp would be to take all that repaid bailout money and simply inject it into the bank insurance fund. Such a move would instantly bolster the deposit insurance fund, which at the end of June had just $10.4 billion in the kitty.

Time to get tough with AIG

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It’s time for someone in the Obama administration to read the riot act to Robert Benmosche, American International Group’s new $7 million chief executive.

Since getting the job, Benmosche has spent more time at his lavish Croatian villa on the Adriatic coast than at the troubled insurer’s corporate offices in New York.

AIG lunacy

American International Group is a $50 stock. Yeah. Sure. But that’s what the market says it is today so it must be.

Shares of AIG are soaring today in part because the insurer’s new CEO Robert  Benmosche tells a Reuters reporter that he doesn’t intend to conduct a firesale of the company’s divisions. He also says he’s been seeking guidance from former AIG CEO Hank Greenberg–the former Wall Street titan who just doesn’t know when to go away.

Germany should call GM’s bluff

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Recently bankrupted companies seeking billions in taxpayer handouts do not generally have the strongest hand at the negotiating table. Yet General Motors seems determined to drive a hard bargain over the bailout of Opel, its European car arm.

After months of tortured negotiations with the German authorities, GM is now threatening to reverse away from the deal. However, it appears to have few alternatives.

Bair, a regulator for the people

 In Sheila we trust.

Maybe that should be the new mantra for U.S. taxpayers — especially ones who don’t feel the nation’s bankers have shown sufficient gratitude for being bailed out and saved from their own incompetence and greed.

Sheila Bair, once again, has shown that she may be the one financial regulator who gets it.

Freddie in the black, Treasury off the hook

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Freddie Mac reports that it managed an actual net income gain in second quarter of $768 billion – a big turnaround from the $9.9 billion loss in the prior quarter. That means Treasury is off the hook, at least in this quarter, in terms of giving Freddie more money through its $200 bln equity line.

This contrasts with Fannie, which needed to take another gulp from the Treasury spigot. See more on the sinkhole here.

from Rolfe Winkler:

Buffett’s Betrayal

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When I was 14, Warren Buffett wrote me a letter.

It was a response to one I'd sent him, pitching an investment idea.  For a kid interested in learning stocks, Buffett was a great role model.  His investing style -- diligent security analysis, finding competent management, patience -- was immediately appealing.

Buffett was kind enough to respond to my letter, thanking me for it and inviting me to his company's annual meeting.  I was hooked.  Today, Buffett remains famous for investing The Right Way.  He even has a television cartoon in the works, which will groom the next generation of acolytes.

The final straw with Citi

 ”We have and will continue to exit several forms of proprietary risk-taking. Where we continue to take principal risk, we will only do so when we have proven teams and a clear source of advantage.” – Citigroup CEO Vikram Pandit on January 16, 2009. 
   
Don’t be fooled by Vikram Pandit’s playing the part of a prudent banker.

Instead of scaling back risky hedge fund-style trading, Citi is doing just the opposite. And that raises big questions about why the federal government continues to bail out this basket case of a bank, and why Pandit is allowed to remain at Citi’s helm.

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