Marketplace Scratch Pad

Morning Reading

Scott Jagow May 6, 2009

The word about Bank of America’s stress tests is that the bank needs $34 billion in capital. B of A might have to raise the money by converting its $45 billion in federal money to common shares. So, why is B of A’s stock up this morning? I don’t get it. Under that likely scenario, current shareholders get diluted and the government owns a third of the bank. Wanna explain that one?

Other things to read:

How to Time the Stock Market (Don’t Do It) (Deal Journal)
It is simply too hard to guess on a week-to-week or day-to-day basis the market’s direction and whether you should be short or long. If you disagree, just look at what a statistical crapshoot market timing can be.

Banks Need Fewer Carrots and More Sticks (WSJ)
Rather than taking over and running banks, the FDIC should split each bank into two parts. One part (“the bad bank”) will assume all the residential and commercial real-estate loans and securitized mortgages as assets, and all the long-term debt as liabilities. In addition, “the bad bank” will obtain a loan from the “good bank.”

Why Warren Buffett is no longer my hero (Marketwatch)
I resent the crocodile tears that Buffett publicly sheds about the future of newspapers without proposing a solution. This is a harrowing time for newspapers, for the people who work in them and those who love to read their content.
The industry is vanishing before our eyes. It needs all the help it can get, especially from a billionaire who is as worldly wise and well connected as Buffett.

Are There Any Rules In The Bailout Game? (Forbes)
Why would private capital get involved when the rules of the game are so capricious? No one would take that gamble when it is clear that, in dealing with the government, private capital will always take a back seat to politically powerful entities.

Chrysler won’t repay bailout money (CNN)
“The reality now is that the face value [of the $4 billion bridge loan] will be written off in the bankruptcy process,” said the official, who added that the 8% equity stake that Treasury will be receiving as part of the company’s reorganization is meant to compensate taxpayers for the lost money. “While we do not expect a recovery of these funds, we are comfortable that in the totality of the arrangement, the Treasury and the American taxpayer are being fairly compensated,” said the official.

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