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Let’s Make a Deal…or Maybe Not

Posted by Larry Doyle on April 7, 2009 11:50 AM |

Two conflicting stories struck me in today’s WSJ. The gist of these stories highlights how and why private enterprise would not want to have Uncle Sam as a partner, unless absolutely necessary. Let me share the stories with my thoughts: 

1. Bailout Man Turns the Screws

I fully respect a tough and honest negotiator. A person who deals in the best interest of his shareholders represents the essence of capitalism. 

Regrettably, our economy has been littered with executives at a wide array of companies who have negotiated more on behalf of select constituencies than shareholders. Plenty of executives have not played by either the spirit or the letter of the law.

Any negotiator needs to understand their counterparty and their goals. Additionally, the ability to adapt is critical. Without sacrificing principles, a level of intransigence can often render negotiations worthless. To that end, it does seem as if the government is learning some of these lessons. 

I do not pretend these negotiations are easy but, given that not every counterparty is the same, I believe slightly different tactics must be utilized as appropriate.  Otherwise, no matter how compelling a deal may appear, counterparties may back away from the table. To wit . . .     

2. Investors Back Away From Fed’s TALF

Please recall how the equity markets surged 5% on the day Secretary Geithner announced the plans for the TALF and the PPIP. These programs are getting off to a very slow start. I just received some real time color from my friends at 12th Street Capital in regard to the TALF: 

I’m not really sure why the government can’t get their act together and do multiple fundings during the month, but I guess I shouldn’t be surprised given that these were the same people that thought all of this paper should just trade on an exchange.  If they fail to make this program work within a realistic market dynamic they run the risk of this falling by the wayside.  


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