RBM
03-29-2009, 11:41 AM
David Kotok gives a layman explanation in the form of coin flips in PPIP: Heads or Tails? (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.)
Start here with this simple example. It’s a coin toss. Heads you win $100; tails you get nothing. How much would you pay to play? You can play as many times as you wish. Answer: not more that $50. For less than $50, you would play as often as you can. $50 is your breakeven; only a fool would pay more.
Now add Tim Geithner as your partner. He matches what you invest but you, and only you, get to set the price to play. Answer: you put up no more than $25 as the investor and that means he matches your number. At under $25 you play as much as you can. $25 is your breakeven as the investor; $50 is still the breakeven for the coin flip.
Now let’s add some of the leverage from the FDIC.
ALAN ABELSON writes a intro if you will for other Barron's pieces. In Dante's Footsteps (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.) The first paragraph with the EU Pres:
IT MAKES US FEEL A whole lot better -- that forthright assertion by Mirek Topolanek, the Czech prime minister and president of the European Union, that President Obama's stimulus package is "a way to hell." What makes it so enthralling to us is less its economic insight (which, to judge by conditions in Mr. Topolanek's country, might be a bit blurry), but something more personal.
Every since first reading Dante, we've been dying to visit hell, but while loads of people have told us to go there, no one ever provided reliable directions on how to get to the place. Well, thanks to Mr. Topolanek -- or perhaps we really should be grateful to Mr. Obama -- it looks like we have an excellent chance of fulfilling a lifelong quest.
Start here with this simple example. It’s a coin toss. Heads you win $100; tails you get nothing. How much would you pay to play? You can play as many times as you wish. Answer: not more that $50. For less than $50, you would play as often as you can. $50 is your breakeven; only a fool would pay more.
Now add Tim Geithner as your partner. He matches what you invest but you, and only you, get to set the price to play. Answer: you put up no more than $25 as the investor and that means he matches your number. At under $25 you play as much as you can. $25 is your breakeven as the investor; $50 is still the breakeven for the coin flip.
Now let’s add some of the leverage from the FDIC.
ALAN ABELSON writes a intro if you will for other Barron's pieces. In Dante's Footsteps (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.) The first paragraph with the EU Pres:
IT MAKES US FEEL A whole lot better -- that forthright assertion by Mirek Topolanek, the Czech prime minister and president of the European Union, that President Obama's stimulus package is "a way to hell." What makes it so enthralling to us is less its economic insight (which, to judge by conditions in Mr. Topolanek's country, might be a bit blurry), but something more personal.
Every since first reading Dante, we've been dying to visit hell, but while loads of people have told us to go there, no one ever provided reliable directions on how to get to the place. Well, thanks to Mr. Topolanek -- or perhaps we really should be grateful to Mr. Obama -- it looks like we have an excellent chance of fulfilling a lifelong quest.