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After The "Rescue

Warren Buffett makes his bets (on GE and Goldman) and proves once again in tough times cash is king -- he's in a position to make what could be big scores. On the other hand if you are in a debt driven business or have used a lot of leverage on your investments you are more likely to be flat on your back....

By Jonathan D. Miller | Updated on October 02, 2008

Warren Buffett makes his bets (on GE and Goldman) and proves once again in tough times cash is king — he’s in a position to make what could be big scores. On the other hand if you are in a debt driven business or have used a lot of leverage on your investments you are more likely to be flat on your back. The Washington rescue/bailout package may prevent systemic collapse in the credit markets, but won’t change dramatically the gloomy outlooks for folks who had been playing the debt game. Necessary deleveraging will take time and deeply pain investors who borrowed too much and surviving lenders who ramped up volume at the expense of underwriting discipline.

And despite the significant damage already suffered across the credit sector, commercial real estate has yet to take most of its lumps. Appraisers characteristically have been gazing in the rear view mirror. Just a few weeks ago, a well-known appraisal honcho was telling me about how income numbers were holding up in most institutional portfolios “through June 30.” Well, how about looking at the next few months. Let’s hope the credit scare abates, but no one should expect the lending spigots to flow again as unemployment ramps up and the government comes to terms with the fact that the country is essentially busted. The scary thing is that so many Americans have been living (large) off credit. The home equity lines, attractive car financing, the credit card deals –it’s all over. Now what does everybody do to keep going when they are in the red and lenders out of self preservation start to turn the screws?   

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