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Harold Maass of The Week The Best of Today's Business

Harold Maass of The Week, The Best of Today's Business

Chrysler Charges Up, Buffett Jumps In

by Harold Maass of The Week

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Posted on Wednesday, September 24, 2008, 12:00AM

NEWS AT A GLANCE

Chrysler plugs in

Chrysler LLC, the smallest of Detroit's Big Three automakers, unexpectedly unveiled three functioning battery-powered vehicles, jumping headlong into the race to build a mass-produced electric car. "I didn't think they were a player," said Jim Hossack at consultancy AutoPacific. "I'm impressed. This suggests a lot of bravado." The three vehicles -- a minivan, a Jeep, and a sports car -- are slated to hit the market by late 2010. (Los Angeles Times) The cars were introduced as Congress is mulling over $25 billion in government-backed loans, possibly tied to increasing fuel efficiency. (BusinessWeek.com) The parent of Indian automaker Tata, meanwhile, said the credit crisis is making the U.S. and Europe ripe for acquisitions. (Bloomberg)

Buffett bets $5 billion on Goldman

Warren Buffett's Berkshire Hathaway invested $5 billion in Goldman Sachs, in a key vote of support during a time of financial chaos. The deal gives Buffett perpetual preferred shares with a 10 percent annual dividend. Goldman had a market value of $53 billion yesterday, giving Buffett about 10 percent of the firm. (The New York Times) Goldman said it will raise an additional $2.5 billion in a public stock offering. And Buffett, along with his $5 billion stake, also gets warrants to buy $5 billion worth of shares at $115 a share for five years. (AP in Yahoo! Finance) Goldman closed at $125 yesterday, then jumped 11 percent in extended trading. "It's a hell of a deal for Buffett," said analyst Brad Hintz at Sanford C. Bernstein & Co. (Bloomberg)

EDF buys British Energy for $23 billion

French nuclear-power giant Electricite de France agreed to buy British Energy Group at a sweetened price of $23.2 billion. The sale price is 35 percent higher than British Energy's stock price in March, before talks started. EDF has already secured the agreement of the British government, which owns about 36 percent of British Energy, and other big investors. (MarketWatch) Centrica, the U.K.'s largest energy provider, is in talks with EDF to buy 25 percent of British Energy after the deal closes. EDF gets eight sites in Britain on which it will build four nuclear reactors. "British Energy's existing assets are aging," said analyst Tina Cook at Charles Stanley & Co. "EDF will contribute its expertise, as well as replacing those assets." (Bloomberg)

Down, maybe not out, on Wall Street

More than 120,000 jobs have been cut across the finance industry this year, and that number will probably jump by 10 to 20 percent with the fall of Lehman Brothers and Merrill Lynch. Most of these jobs weren't held by Porsche-driving traders will million-dollar paychecks. Still, for bank employees, both high-pay and low, the sudden change is a shock. Some of these workers have found new jobs in the industry, unable to give up the still-higher-than-elsewhere paycheck. Others have used the change to take stock. "It's really not comfortable, it's disorienting,” said former Bear Stearns analyst Andy Neff, who opted to study Jewish sacred texts. "But I find it unfortunate that people tend to focus on how much they lost." (The New York Times)

BEST COLUMNS OF THE DAY

The bailout big picture

Congress has a real challenge in trying to "improve the bare-bones $700 billion" Wall Street bailout plan, says David Leonhardt in The New York Times, largely because most legislators have little or no "expertise in the byzantine details of mortgage finance." But if they get it right, the final cost won't be anywhere near $700 billion. Their best shot is to focus tightly on two questions: "What steps are most likely to solve the immediate crisis? And how can the long-term cost to taxpayers be minimized?" Everything else is a distraction or a detail that, with the credit markets "nearly dysfunctional," we don't have time for. Congress should demand a stake in participating firms, and leave executive pay and other issues for later.

Don't stop thinking about tomorrow

So should you stop contributing to your 401(k) until the markets settle down? says Money's Walter Updegrave in CNNMoney.com. Certainly not if you're in your 20s or 30s, and probably not if you're 60 or 65. That's not to say that the Wall Street bailout will suddenly shift the economy into "cruising speed," just that "it would be foolish in the extreme to write off the long-term prospects for stocks." Investing for retirement is investing for the long haul, and historically, some of the best long-term gains have gone to those who bought "stocks when they're reviled." Up through your 40s, consider keeping 80 percent or more of your investment in stocks; if you're 60, maybe 55 percent. Then, mostly, sit back and wait.

GOOD DAY FOR: Riding low, after U.S. scooter sales rose 66 percent in the first half of the year, in step with gas prices, even as car sales slumped and motorcycle sales were flat. Sales of Piaggio's scooters, including Vespas, more than doubled each month this summer. Americans used to buy scooters for weekend fun, says Piaggio's Paolo Timoni, but now it's an "an alternative transportation vehicle." (CNNMoney.com)

BAD DAY FOR: T. Boone Pickens, after the 80-year-old Texas oilman-turned-energy-independence spokesman's hedge funds lost about $1 billion this year, mostly because he was blindsided by the mid-summer downturn in the energy market. His personal losses total $270 million. "It's my toughest run in 10 years," Pickens said. "There's nothing fun about it." (The Wall Street Journal)

NOTED: The FBI is investigating Fannie Mae, Freddie Mac, Lehman Brothers, AIG, and 22 other companies and their executives for possible malfeasance in the subprime mortgage collapse. The investigation will look for accounting misstatements and other signs of fraud. (Bloomberg)

This column was written by Peter Weber and edited by Harold Maass of TheWeek.com.

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31 Comments

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  • Yahoo! Finance User - Wednesday, September 24, 2008, 11:26AM ET  Report Abuse

    • Overall: 5/5

    Re Bailout Big Picture: The Birk Plan: I'm against the $85,000,000,000.00 bailout of AIG. Instead, I'm in favor of giving $85,000,000,000 to America in a "We Deserve It Dividend". To make the math simple, let's assume there are 200,000,000 bonifide U.S. Citizens 18 . Our population is about 301,000,000 /- counting every man, woman and child. So 200,000,000 might be a fair stab at adults 18 and up. So divide 200 million adults 18 into $85 billon that equals $425,000.00. His plan is to give $425,000 to every person 18 as a "We Deserve It Dividend". Of course, it would NOT be tax free. So let's assume a tax rate of 30%. Every individual 18 has to pay $127,500.00 in taxes. That sends $25,500,000,000 right back to Uncle Sam. But it means that every adult 18 has $297,500.00 in their pocket. A husband and wife has $595,000.00. What would you do with $297,500.00 to $595,000.00 in your family? Pay off your mortgage, housing crisis solved. Repay college loans, what a great boost to new grads Put away money for college, it'll be there Save in a bank, create money to loan to entrepreneurs. Buy a new car, create jobs Invest in the market , capital drives growth Pay for your parent's medical insurance, health care improves Enable Deadbeat Dads to come clean, or else Remember this is for every adult U S Citizen 18 including the folks who lost their jobs at Lehman Brothers and every other company that is cutting back. And of course, for those serving in our Armed Forces. If we're going to re-distribute wealth let's really do it...instead of trickling out a puny $1000.00 (vote buy) economic incentive that is being proposed by one of our candidates for President. If we're going to do an $85 AIG billion bailout, let's bail out every adult U S Citizen 18 ! As for AIG liquidate it. Sell off its parts. Let American General go back to being American General. Sell off the real estate. Let the private sector bargain hunters cut it up and clean it up. Here's my rationale. We deserve it and AIG doesn't. Sure it's a crazy idea that can never work. Maybe??? But can you imagine the Coast-To-Coast Block Party! How do you spell Economic Boom? I trust my fellow adult Americans to know how to use the $85 Billion "We Deserve It Dividend" more than I do the geniuses at AIG or in Washington DC. And remember, The Birk plan only really costs $59.5 Billion because $25.5 Billion is returned instantly in taxes to Uncle Sam.

  • Mark - Wednesday, September 24, 2008, 11:07AM ET  Report Abuse

    • Overall: 5/5

    Our political leaders should get smart and call Wall Street's bluff. Wall Street has lost credibility and a market for their overpriced products, so they are looking to preserve their greedy ways. Like the local school board who fires teachers and raises school fees rather than cut administrators and their over-sized salaries when the budget is cut, so Wall Street is threatening us "little people" if we don't keep serving up the billions. I say call their bluff and let them eat cake, and some perp walks are in order as well.

  • Yahoo! Finance User - Wednesday, September 24, 2008, 10:39AM ET  Report Abuse

    • Overall: 3/5

    No one was complaining when home ownership was at an "all time high." Politicians and finance professionals know that many people aren't responsible enough to have a home or 30 year mortgage but it's hard to stop being reelected and making multimillion dollar bonuses. Next statement from the press will be "home affordability index" trying to find a silver lining and entice people to buy something they don't need. Don't listen to the press or 99% of the "finance professionals." Stop and think if you can afford something for 30 years given your employment situation and stop going into debt! Many wise words have been penned about debt and our country isn't listening to them. There will be consequences.

  • Bob Hines - Wednesday, September 24, 2008, 10:24AM ET  Report Abuse

    • Overall: 5/5

    The bailout details don't matter-$700 billion won't be enough as Citibank alone has multiples of that in Level 3 assets.

  • Thomas - Wednesday, September 24, 2008, 9:49AM ET  Report Abuse

    • Overall: 5/5

    The FBI needs to start with Countrywide who led the charge on this sub-prime marketing fiasco. Then focus on the other gutless jerks who followed suit. After witnessing so many of these fiascoes of recent years, it is a wonder that any knowledgeable person has any faith in Wall Street. The good old boy system proved to be an incestuous pool of greed, delusion and arrogance of the magnitude of a perfect financial storm. I do beleive that a lot of people will go to jail and be required to pay compensation to the government and stakeholders.

  • Yahoo! Finance User - Wednesday, September 24, 2008, 9:46AM ET  Report Abuse

    • Overall: 5/5

    What motivation would the Democratic Congress have to pass the bailout package? The worse things get, the more likely it gets that people will vote for Obama. Might as well let the world economy crash so that all of their socialist programs can get passed.

  • Yahoo! Finance User - Wednesday, September 24, 2008, 9:29AM ET  Report Abuse

    • Overall: 4/5

    Jus should do stand-up comedy. What will happen in November that will make 401k savings pointless? A McCain win?

  • Yahoo! Finance User - Wednesday, September 24, 2008, 9:17AM ET  Report Abuse

    • Overall: 5/5

    Isn't a shame that the FBI has to do in hindsignt what the SEC should have been doing in advance.

  • Yahoo! Finance User - Wednesday, September 24, 2008, 9:07AM ET  Report Abuse

    • Overall: 5/5

    T. Boone may be down $1B now, but next year he'll be up $2B. This financial crisis is undermining the fundamentals of valuation right now. Stocks, especially energy-related, are at historical bargain basement prices. If I were 20 or 30, I'd be plowing as much as I could into the market right now, despite what it may do in the next 6-12 months, because over the long haul stock prices will normalize and you'll realize an even bigger return than the morons that waited this out before buying again. Hell, I'm 40 and buying as much as I can afford to put in. Recessions are the best time to buy stocks if you actually have the money. Do you see Warren Buffet sitting on his pile of money and waiting? No way. He just made a sweet deal buying a huge chunk of Goldman. 10% guaranteed MINIMUM return a year. If I got that from my entire portfolio indefinitely I'd be one rich retiree.

  • JPMorgan888888 - Wednesday, September 24, 2008, 8:50AM ET  Report Abuse

    • Overall: 5/5

    What a big change from yesterday's print to today, Harold. It's funny, people are willing to exchange safety for saving a few bucks in gas-great idea!!-- Trade in your SUV for a scooter and pack the whole family on one scooter like they do in Turkey! T.Boone was overweight in oil- if he would have listened to me months ago to watch out below when oil was $145, he would be up by a billion. If you are 20 or 30, stop adding to your 401k, because there won't be any need after November... Use it to pay off your debt, and then party like it's 1999 all over again. Live today, for tomorrow... well you know the rest.

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