Tuesday, March 03, 2009

Thanks, Bill. Didn't know I'd bought a Mascot [updated]

When the news came out yesterday that Mascot Finance had gone under I thought to myself, "Phew," thank goodness I hadn't invested my money in that dog.

Oops!

Turned out I had. And so had you.

Turned out the government has invested your money on your behalf.

About $28,000 each promised to each of Mascot's 2558 "investors."

Good on us, eh. :-/

PS: Turns out Mascot stopped taking deposits in September. Turns out Treasury okayed its inclusion in the Government's Guarantee Scheme in October. Turns out Treasury still reckons that "based on the indications at the time, there was no reason to decline Mascot Finance's application."

Which means this won't be the only "investment" you never made that you're going to have to pay for.

UPDATE: In the latest report from the Sage of Omaha,Warren Buffett confirms the inherent destructiveness of government guarantee schemes:
Funders that have access to any sort of government guarantee – banks with FDIC-insured deposits, large entities with commercial paper now backed by the Federal Reserve, and others who are using imaginative methods (or lobbying skills) to come under the government’s umbrella – have money costs that are minimal.
Conversely, highly-rated companies, such as Berkshire, are experiencing borrowing costs that, in relation to Treasury rates, are at record levels. Moreover, funds are abundant for the government-guaranteed borrower but often scarce for others, no matter how creditworthy they may be.
This unprecedented “spread” in the cost of money makes it unprofitable for any lender who doesn’t enjoy government-guaranteed funds to go up against those with a favored status. Government is determining the “haves” and “have-nots.” That is why companies are rushing to convert to bank holding companies, not a course feasible for Berkshire.
Though Berkshire’s credit is pristine – we are one of only seven AAA corporations in the country – our cost of borrowing is now far higher than competitors with shaky balance sheets but government backing. At the moment, it is much better to be a financial cripple with a government guarantee than a Gibraltar without one.
Download Buffett's wisdom from the mountains here [pdf].

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8 Comments:

Anonymous Richard McGrath said...

How did you come up with the $28k figure PC?

3/03/2009 10:18:00 am  
Blogger Luke H said...

This comment has been removed by the author.

3/03/2009 10:36:00 am  
Anonymous twr said...

I think he means $28 not $28k. Unless he's excluding the ninety something percent of people who effectively pay no tax anyway, which doesn't make it right, but closes the gap between 28 and 28,000.

3/03/2009 10:37:00 am  
Anonymous Terry said...

$70M owed to 2558 investors = $28K per investor, to be paid for by the taxpayer (potentially).

3/03/2009 11:02:00 am  
Blogger PC said...

UH, thanks Terry. I'd just changed the post to make it clearer and was about to explain my working here.

Ta. :-)

BTW, I understand Leighton Smith made the same calculation this morning. I'm sure a few others will be too...

3/03/2009 11:06:00 am  
Anonymous Marcus said...

Doesn't it just warm the cockles of your hearts to know that you're helping out in this way? I feel like a better person.

3/03/2009 12:57:00 pm  
Blogger Paul said...

Can I nominiate the investor who gets my share? It would be like sponsoring a child in Africa. In return for my generosity, I would receive Christmas cards and letters of thanks from my Investor.

3/03/2009 06:45:00 pm  
Anonymous LGM said...

Just recently Buffet bought into a central bank franchise. He offerred political support to Obama and now acts as an "advisor". He supports the notion of income taxes, estate taxes and big (massive) government.

His company is experienceing some problems. Let's see he's presided over the destruction of 48% of his investor/partners' wealth. He should be worried. Does he know why this has occurred and what the cause actually is?

Does he actually have a clue about why this recent economic crisis got started? If he does he's dishonest not to be shouting it from the roof-tops. If he doesn't, well then he's not what one could call economically or politically literate (being charitable, there are sterner terms one could emply here).

LGM

3/05/2009 05:40:00 pm  

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