Bail-out round-up

Yesterday McCain met with Romney to discuss the financial crisis:

"Most Americans feel very strongly this isn't their fault. It's Wall Street and Washington and the cozy insider relationships that have caused a great part of the problems," he said.

Flanking McCain were former Massachusetts Gov. Mitt Romney, his one-time rival for the GOP presidential nomination, and former eBay CEO Meg Whitman. Others in the meeting were John Chambers, CEO of Cisco Systems, and John Thain, the CEO of Merrill Lynch before it was acquired by Bank of America earlier this month for a much-reduced value.

The WSJ on the bail-out:

The risk to taxpayers is real, to be sure, especially because Mr. Paulson isn't telling anyone how Treasury intends to buy the assets. His concept of a "reverse auction" would let banks bid securities against a Treasury offer of cash -- say, $50 million. This is better than a flat-price purchase, but it still puts banks in a superior bargaining position based on what they know about the assets.

The better idea is an open auction. This would let private buyers join Treasury in bidding for bank securities. Taxpayers wouldn't have to buy all bad securities first, and, as the market develops, those that Treasury does buy would rise in price. Treasury could even make money on the resale.

Deriding bailouts is politically potent, but the truth is that taxpayers are at risk whether or not the Paulson plan passes. The Federal Reserve's balance sheet is distended with crummy collateral, plus an $85 billion loan to AIG and a $29 billion guarantee for Bear Stearns securities. More bank failures are likely, as housing prices keep falling. Moonlighting as a bailout agency isn't the Fed's job and only undermines its credibility on the dollar. The Paulson plan puts these taxpayer obligations where they belong -- with the Treasury.

Warren Buffett sees US bailout as a golden opportunity:

The legendary investor Warren Buffett reckons the US government can make a sizeable profit if it manages its $700bn (£377bn) banking bailout package carefully - and he urged Congress to act quickly to avert an "economic Pearl Harbour".

Having been uncharacteristically quiet through much of the financial crisis, the world's richest man broke cover late on Tuesday by investing $5bn in Goldman Sachs, delivering a powerful shot in the arm to the sickly banking industry.

The Nebraska-based billionaire, whose fortune is estimated at $62bn, threw his weight wholeheartedly behind Henry Paulson's rescue package for Wall Street, arguing that US industry will "grind to a halt" without action.

"Last week, we were at the brink of something that would have made anything that's happened in financial history pale," Buffett told CNBC television. "I'm not saying the Paulson plan will eliminate the problems but it's absolutely necessary, in my view, to avoid going off the precipice."

Buffett, whose opinions are hugely influential among millions of private investors in the US, said that if the Treasury acts shrewdly by buying banks' distressed assets at a competitive price, taxpayers will end up as financial winners.

"I bet they'll make a profit," said Buffett, who pointed out that hedge funds specialising in junk assets were already picking up mortgage-related securities with a view to making profits of 15% to 20%. He said a positive return was feasible if the government ignores the book value of instruments or the original cost to banks and instead pays the prevailing market rates for the bombed out assets.

"They'll pay back the $700bn and make a considerable amount of money if they approach it like that," said Buffett. "I would love to have $700bn at Treasury rates to buy fixed-income securities - there's a lot of money to be made."

I don't like Buffet's politics but he did put his money where his mouth is. Maybe he should spend the rest of 60 plus billion fortune to buy some of Fannie and Freddie's junk notes.