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A while back I wrote about how shareholders were at risk of management selling them up the river with dilutive converts and the like.

But if a someone buys all the shares in a takeover they don’t have that risk.

Therefore, I concluded, equities would get cheap enough for a massive round of takeovers.

Now a different risk has presented itself. Seems when the Fed or the Treasury decides to step in and help they take 79.9% of the equity.

So when the stock of a too-big-to-fail prospect starts going down, the incentives are in place for it going down further/faster as the risk of government intervention increases.

Lower prices make takeovers even more attractive.

Once they get going, look for record takeover volume.


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4 Responses

  1. Who will finance? my asian friend ONE HUNG LOW, my saud prince friend weedle, my columbian friend Pablo Escabar – they got all the money now right? New York is no longer the center of the universe.

    Warren scott irwin does not like your friend Mike masters – the comments at his blog all accuse mr. masters of talking his book and all his big airline purchases – I know you said maybe you had 5% of your wealth in equities, where is the rest of your wealth? Tax free virgin island rental real estate?

    Who is this hillbilly professor to take down that pirate raider island guy Mike Masters anyways? (the most powerful man in washington) like that matters when washington is no longer the center of the universe and is filled with a bunch of crony crooks?

    http://www.econbrowser.com/archives/2008/09/scott_irwin_tak.html

    Specificially Warren he says this:

    “My esteemed predecessor at the University of Illinois, Tom Hieronymus , put it this way, “for every long there is a short, for everyone who thinks the price is going up there is someone who thinks it is going down”

    You know, most people I know think the price of a great many things are going up and not down, and some other things are definitely going down and not up, and there is not this BALANCE of equal believers of up price and down price. For instance, none of my friends in miami think the price of a condo is going up. None of my friends in china think the price of gold is going down – etc etc – I can provide billions of examples that for every long person – there is a short person – anyways another thing that bothers me about this guys memes.

    I will use the silver market as that is what Professor Irwin chose to discuss – back during the building of the first nuclear bombs silver was a main ingredient for the cyclotrons to process the nuclear material – the general in charge of the manhattan project needed massive amounts of the stuff – he went to all the finance boyz and had them play with the markets so that the nazi’s and japs wouldn’t catch on that large amounts of silver were leaving the market place – effectively they were able to keep the price of silver unchanged for several years even though they had taken most of the supply out of circulation – now who was it that said you can’t keep a big conspiracy like that secret for long? (snicker) anyways after the war they dismantled all those cyclotrons and the silver was returned and general market participants never knew.

  2. We’ve had fannie, freddie and aig taken over by the fed, Lehman filing, morgan stanley and wamu likely merging with a banking partner relatively soon…the list of other “too-big-to-fail” candidates is starting to look pretty slim unless you think the big banks are candidates…or include europe.

  3. wins- real money buyers, low leverage at best.

    mc- agreed with irwin, mkts reflect indifference levels. goes without saying in my book

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