Water Cooler Finance: Buffett Buzz, Toxic CDOs And Facebook Privacy

By Erin Joyce | May 25, 2010 AAA
Water Cooler Finance: Buffett Buzz, Toxic CDOs And Facebook Privacy

This week, the two biggest stories of the past few weeks, Goldman Sachs (NYSE:GS) vs. the SEC and the precarious situation in the eurozone, continued to unfold. Meanwhile, all eyes are still on Warren Buffett's every move and social media giants Facebook and MySpace face scrutiny about the information they provide to adverstisers.
The $1 Billion Question
While it seems every analyst is predicting a different outcome in terms of the SEC's fraud lawsuit against Goldman Sachs, the latest best guess is that a settlement will be reached. The number being batted around is a cool $1 billion – apparently that would be sufficient to satisfy the masses, and it's in line with the $875 million precedent set by the SEC case (also concerning collateralized debt obligations or CDOs) against 10 firms when the technology bubble burst back in the early 2000s. (Learn more about the tech bubble in the Greatest Market Crashes Tutorial.)

Speaking of CDOs, the Federal Deposit Insurance Corporation (FDIC) is dealing with more than 250 of the troublesome securities, which were purchased by small institutions that failed. The Wall Street Journal reported last week that the FDIC isn't taking this flood of toxic assets lying down – it's weighing the possibility of jumping on the lawsuit bandwagon and suing the financial firms that allegedly misrepresented the value of the CDOs. (Learn more about the role CDOs played in recent financial crisis in Collateralized Debt Obligations: From Boon To Burden.)

It's a "Dumb" Deal
The Oracle of Omaha has been cleaning his investment house at Berkshire Hathaway (NYSE:BRK.A). In the first quarter, the firm sold all holdings in WellPoint Inc. (NYSE:WLP), UnitedHealth Group (NYSE:UNH) and SunTrust Banks (NYSE:STI). Berkshire also reduced its stake in Johnson & Johnson (NYSE:JNJ), Procter & Gamble (NYSE:PG) and ConocoPhillips (NYSE:COP). But the big story was Berkshire's 23% cut to its Kraft (NYSE:KFT) holdings.

The share sales were intended to raise cash for the purchase of Burlington Northern Santa Fe, but Buffett's open dispute with Kraft makes it hard to believe that he doesn't just plain want out of the stock. Buffett had very vocally disapproved of Kraft's pursuit of Cadbury (OTC:CDSCY), and the sale of two of the company's pizza brands to Nestle (OTC:NSRGY); he was widely quoted as saying that "the odds are that both deals are dumb" at Berkshire's annual shareholder meeting earlier this month. (Find out how to track what Buffett's been doing in Build A Baby Berkshire.)

Spain's Game Plan
In an attempt to avoid a Greece-like bailout, Spain's prime minister José Luis Rodríguez Zapatero (say that name three times fast!) announced spending cuts of $US18 billion and told the wealthy of the country to expect an income tax hike, the New York Times reported this week.

As for Greece, it has now received the first 14.5 billion euros of bailout loans from the eurozone countries. That sum is meant to cover a nine billion euro bond due to mature May 22. (For more on what's been happening in Greece, read Greece: The Worst-Case Scenario.)

Social Media Sells You Out
Everyone knows advertising companies are privy to the information you put online – everyone knows, but no one really wants to think about it. Have you ever noticed that when you are logged into your Gmail account reading an email about a party this weekend, the ads at the top all change to party supply stores, the best places to party, and catering companies to hire for your next party?

This is nothing new, and auto-scanning email for keywords is pretty tame, especially compared to the accusations against Facebook, MySpace and other social networking sites that they've provided information to advertising companies that could be used to find consumers' names and other personal details. Despite promises to the contrary, it appears that Facebook and MySpace advertisers may have been privy to information that could allow them to look up individual profiles and access such information as real names, ages, hometowns and occupations, according to a May 21 story in the Wall Street Journal.

As of late last week, both Facebook and MySpace had announced moves to update privacy features.

The Bottom Line
The news never sleeps, especially when Warren Buffett is involved in the story. Look for the Goldman Sachs and eurozone stories to unfold and heavy news coverage to continue in the coming weeks … and probably months.

If you missed last week's news, check out Water Cooler Finance: Greece Attacks And Google Hacks.

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