celestri.org

Shame on you
Fool me twice
Shame on me.

Ben and Henry (Benry???) as I blog are pleading their case to the Senate Banking Committee. It’s almost like a repeat of the justification for the Iraq War – If we don’t do something about weapons of mass destruction (WMD) the US is toast.  This time the WMD’s are derivatives as Warren Buffet so accurately predicted back in 2003.  

This is a complete sham, they should be focusing on the homeowner – cut them a check and hope they don’t default.  Instead, their theory is to help the banks and people holding these toxic instruments and make them whole and in turn that will trickle down to the homeowners.  Awesome theory, I believe the theory about the Iraq war was that it would pay for itself once we start pumping the oil…we all know how that is going. Iraq is costing taxpayers close to USD 10-12 billion a month with no end in sight.  They want USD 700 billion for this bailout, I’m sure that figure will easily exceed USD 2 Trillion if they get this passed in Congress.

I’m not sure what will be more valuable – Monopoly money or the US dollar?

Lordy, the Treasury Secretary has spoken and in a nutshell “you the taxpayers are going to bailout the big boys.” Henry Paulson said the alternative was a complete collapse of the financial system, when phrased like that his plan doesn’t seem to bad. And, with that the markets have raced up 4%. Of course the taxpayer is already suffering from “massive mortgage syndrome” so I’m not sure where we are supposed to pony up the extra dough for this.

…provides broad federal authority to clean up releases or threatened releases of hazardous substances that may endanger public health…

The above was the mandate of the government sponsored Superfund back in the 1980′s to protect people, families, communities and others from heavily contaminated toxic waste sites that have been abandoned.  Yup…that sounds like what is happening right now.

Amid all the market chaos occurring over the past 48 hours, one news item stuck with me – Lloyds Bank threw down USD 21 billion to buy a mortgage lender. I was shocked I knew Lloyd Banks was doing well from his stint with 50 Cent and the rest of the G Unit crew…but not USD 21 billion good. Then I realized it was Lloyds Bank of London who was acquiring HBOS not the rapper Lloyd Banks. My bad…the movement of a letter in the name makes all the difference, for future reference:

The Rapper – Lloyd Banks

The Bank – Lloyds Bank

The US Government over the past several months has turned into a formidable distressed investing Private Equity shop. The General Partners (Uncle Sam and team) have said that the Limited Partners (taxpayers) will have limited exposure if any. Hmmm…not sure how the deals were structured but as a Limited Partner I’m hoping to get a peak at the term sheets. Anyways, let’s take a look at their recent deals:

Bear Sterns – This deal is very unique from a PE perspective, JPMorgan owns 100% of the company assets and Uncle Sam is potentially liable for 100% of the debt. I’m not sure what the exit is for Uncle Sam, it seems there is no upside and only downside.

Fannie/Freddie – Although they are separate entities I’ll treat them as one.  Uncle Sam again owns nothing has the ability to own upto 79.9% in these entities and has already pulled rank and fired the CEO’s of both entities when the deal was announced. Uncle Sam is on the hook for USD 5 trillion in mortgages that Fannie/Freddie own. (I believe that is the first time I’ve used the word trillion on my blog). The “term sheet” (hat tip Todd).

AIG – Uncle Sam will own 79.9% equity right off the bat.  AIG will have access to a loan facility of upto USD 85 billion at LIBOR + 850 basis points.  I hope as a limited partner I can get some insurance discounts from AIG.

As with any PE shop I hope they are looking to diversify, the financials seem a bit risky. I suggest they look at the automotive sector, I hear Cerberus Capital is getting raked over the coals with Chrysler.

Actually Lehman has sold the building. Lehman’s US broker/dealer operations were sold to Barclays for USD 1.75 billion, which seems like a good amount of dough till you read the specifics.  Barclays will spend USD 1.5 billion for the Lehman headquarters in Times Square and 2 data centers and the rest – USD 250 million for the operations, people, brand, etc…So all the talk about how a companies most valuable asset goes down the elevator every day is all BS.  In this case, the actual elevator and building are worth more then the employees.

In India Lehman Brothers is looking to windup operations at every level.  What forced Lehman Brothers to file for bankrupty was their Real Estate portfolio. Sundaram Rajagopal was the Managing Director of the Real Estate portfolio for Lehman India. In India they were very aggressive in getting deals done, they had two portfolios: the PE Real Estate fund and their own prop book.  It seems the prop book is going to see some serious unwinding (read – liquidation) which will add more pressure to property prices in India.