Wednesday, October 08, 2008
We Want Our Warrants
We've just read the government's bank rescue plan. Worryingly, there's no mention whatsoever of those equity warrants we blogged yesterday.
As you will recall, the model we taxpayers want is the Warren Buffett Way. Wily old Warren put his $5bn into Goldman Sachs preference shares - just as our government is now proposing - but also insisted on a big helping of keenly priced equity warrants (the option to buy Goldman shares in future at a price fixed now, at today's firesale levels). So Warren will share fully in any future increase in Goldman's share price. Quite right too.
Darling has just been interviewed by Humphrys, and talked only of taxpayers benefiting from the dividends on the preference shares, not sharing in any future price appreciation. Sadly, Humphrys didn't know enough to ask the warrants question. But somebody needs to.
We should not be pumping equity capital into the banks unless we get a share in the future growth in the banks' value. That's obvious.