October 17, 2008
An Investment Banker's Dream
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Imagine being an investment banker who is given the full force of credit of the federal government, along with $700 billion to spend aggressively with a mandate to go out and buy assets at will.
Well, that's exactly the job U.S. Treasury Secretary Henry Paulson has. Our treasury secretary is a former Wall Street investment banker serving as Chairman and CEO of Goldman Sachs. He's in the enviable position of being able to wheel and deal with every financial institution, along with many other companies, as a result of the country's financial crisis. He was behind the deal that was just struck with AIG to purchase nearly 80% of the company for a loan of $85B. Hundreds of billions of dollars more have been allocated to save other troubled financial institutions by pumping funds into those entities.
He knows a few things about making money and I would say that there is an excellent chance that he will turn these lemons into lemonade — making billions for the American taxpayers. This is one of the biggest opportunities that the United States government has ever had to make windfall profits.
I'm not a believer that the federal government, or any government agency for that matter, should be investing taxpayer dollars as equity into private enterprise. However, because these private companies have made errors and mistakes that demonstrate pitiful judgment, I do believe federal dollars should be infused on an equity basis so that the taxpayers can not only recoup the funds, but earn a profit as well.
Every one of the deals that Henry Paulson is doing is almost guaranteed to yield a profit to the American taxpayer. Take a look at the AIG deal. I can't reveal the numbers that have been shared with me by a source close to the company, but upon liquidation, the various operating entities that company owns will yield significantly more than the $85 billion loan made available by the feds. The American taxpayers are going to keep almost 80% of the surplus — so we might make a couple hundred billion dollars. Not bad for a loan of $85 billion and just a little bit of time.
Leave it to the investment bankers to manufacture money. That is what they do best.
A similar deal will transpire with other financial institutions as the government also invests money into these entities. What taxpayers are mad about now may well turn out to be a significant premium.
Keep your eyes on Henry Paulson. There aren't many guys sharper than him.
About Joel G. Block
Well known in the business community, Joel Block is a best selling author, speaker, and business strategist. Frequently a principal in his transactions, Joel has raised tens of millions of equity dollars for his ventures, which have included real estate syndications and privately held businesses.
Joel’s career is highlighted by the launch of a financial publishing company which he grew nationwide and later sold to the Los Angeles Times. More recently, Joel works with scientists, engineers, technologists and others to help them optimize their entrepreneurial opportunities. Would you like to get a private phone consultation with Joel? Visit www.joelblock.com/capital for details.
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Filed under Business Financing, Financial News, Private Equity, Raising Capital by Joel Block
Comments on An Investment Banker's Dream »
You are right, of course, and thanks for ballparking a number on the AIG deal. If "we" do earn a couple hundred billion dollars on AIG, or in this entire event, you can be sure that the Congress is going to blow it on pork and special interest legislation. Heaven forbid we ever run a surplus or pay down the debt we just ran up. What will certainly result is a "movement" to give much of that money away to put evicted people back into houses they will own, which will just illustrate that the government will not keep its thumb off the scales of commerce. And so round 2 will begin. The special interests of all kinds are already drafting the instructions to Gucci Gulch.
I'm just cynical this morning.
I am shocked that you actually believe we the taxpayers are going to profit from this gigantic scam. Paulson knows a lot about stealing money and counterfeiting money, but absolutely nothing about MAKING real money as in producing something of value. He should be tarred & feathered and then hung from the highest rafters of the White House, because our great-grandchildren will still be paying through the nose for his misdeeds.
Joel, though I think you're right the vast majority of the time on this blog, this time is a whopper of a booboo. Please go back to the usual excellent stuff so I can forget you ever posted this one.
I can understand your dislike of investment bankers but what strikes me as interesting is that two people could look at the same situation and see such different perspectives. I respect your position but time will tell how it works out. Thanks for your comment. Joel