Insiderman

Warren Buffett's 'Secret' Investment Formula

Point 3 above appears very close to FCFE (free cash flow to equity).

A good point 4 would be to look at the quality of management. Unfortunately, Buffett's stake is GE makes it appear that Buffett was one of many investors taken in by shoe salesman Jeffrey Immelt.

Since Immelt assumed the throne in September 2001, he has done nothing but drive all aspects of that business into the ground, from the liberal NBC property that propels drivel into mainstream America to the failed Honeywell merger in 2002.

The worst part about Immelt's merger mania might be funding the whole process in great part with commercial paper.

Now, GE is another quasi-government entity with its GE Capital and GE Money businesses. Expect GE infrastructure companies to benefit from their "close cooperation" with the U.S. Treasury department. Electric, water, military and other divisions should do well under the Messiah as a reward for NBC's complicity in his ascension.

As further proof that they might even be in on the plans of our new Fabian Socialist administration, GE plans to spin off consumer appliance and lighting businesses. Taking money away from upper middle class buyers will certainly crater the GE Profile appliance division.

Time Warner still, apparently, hopes to acquire NBC Universal. Hopefully, GE can jettison that dog.

But now that Buffett has a say in GE and a new love for socialist economic policy, perhaps GE will decide to keep NBC... who knows.

Perhaps the worst GE blunder was to decide to hold 100 percent of its own mortgage loans and then buy a big stake in AIG, the company that took the losing side of credit default swaps.

Perhaps Buffett decided to take his initial $3B GE preferred stock stake in order to fix the company. In that case, I wish him all the best. You've got to ask how much he'll be competing with the government for payment on that preferred interest.

WaMu Shows, Again, Smart Money Can Be Wrong

The whole WaMu takeover is so bizarre.

First, FDIC seized WM on a Thursday and immediately gave it to JPM. This implies that FDIC had agreement from JPM to do the deal. WM was in the process of finding a suitor, and JPM was one of the suitor candidates earlier in the process. JPM must have been contacted shortly after they did their due diligence because they had an offer ready. This means that FDIC KILLED any prospect of JPM purchasing the company before seizure. There ought to be a lawsuit against somebody in there somewhere.

Second, FDIC was out of money. They get $1.9 billion in the deal to help bail out other troubled banks. That's not how the FDIC system was supposed to work. FDIC's funds were supposed to come from insurance premiums, NOT from equity shareholders and subordinated debt. Low premiums created a moral hazard for this situation within the FDIC, who desperately needed more money to cover potential upcoming closures.

Third, Warren Buffet and Jamie Dimon are totally dependent on the $700 billion Washington financial system bailout for their deals to bear real fruit. This means that there is ... once again... tremendous pressure on Barney Frank and Chuckie Schumer to come through for their buddies on Wall Street. Every Democrat in Washington (well almost every Dem) gets contributions from these guys.

Fourth, letting the beneficiaries of Wall Street contributions (Frank, Schumer) manage the bailout deal is so incredibly remarkable! No wonder that the part of the country 20 miles away from Wall Street is ready to cut off their own noses to spite their own faces and let Wall Street fall into the Atlantic.

Fifth, all the major offenders in this situation got up in Switzerland and spoke about how THEY controlled risk. Frank and Schumer have done nothing as heads of their committees to ensure that this was actually taking place. Paulson and Bernanke have known about the Level III asset risk forever and have done nothing.

So government was the problem when they said we have to subsidize home ownership for low income and minority buyers who couldn't come up with enough down payment/ monthly payment/ funds to fix up their property. Government was the problem with a system where contributions bought concession on regulation of risk. Government was the problem when contributions bought concession on oversight to ensure markets stay free. Now the recipients of these contributions think we should bail out the companies that took advantage of this system.

The original deal doesn't even pass the smell test.