Item 2. Management's Discussion and Analysis of Financial Condition and Results of Interim Operations.

The following should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations included in the 2007 10-K.

Liquidity and Capital Resources

General

The Company's investment portfolio, shareholders' equity and results of operations can be significantly impacted by the changes in market values of certain securities, particularly during times of increased volatility in security prices. During the third quarter of 2008, there were significant changes in the market prices of the Company's largest publicly traded equity security investments, and the volatility in the market prices for these investments has continued subsequent to September 30, 2008. The Company's investment in FMG, which had an aggregate market value of $1,824,700,000 at December 31, 2007 and $3,171,100,000 at June 30, 2008, declined to $1,026,500,000 at September 30, 2008 and declined further to $560,300,000 at November 3, 2008. The decline in FMG's aggregate market value during 2008 has a significant impact on the Company's reported shareholders' equity and non-current investment portfolio.

As more fully discussed above, SFAS 159 permits the Company to measure many financial instruments and certain other items at fair value, with unrealized gains and losses reported in the consolidated statements of operations. The Company has only elected the fair value option for two eligible items during the first nine months of 2008, the investments in Jefferies and ACF, and the volatility in the market price of those investments, combined with the size of the Company's ownership interest, has significantly increased the volatility of the Company's earnings. The Company may also experience significant volatility in future periods from its investments in Jefferies and ACF and/or from new items for which the fair value option may be elected. During the three and nine month periods ended September 30, 2008, the Company recognized unrealized gains (losses) of $51,600,000 and $(73,900,000), respectively, related to its investment in ACF, and unrealized gains of $271,100,000 and $293,900,000, respectively, related to its investment in Jefferies.

Subsequent to September 30, 2008, the market prices of the Company's investments in Jefferies and ACF have significantly declined. At November 3, 2008, the aggregate market value of the Company's investment in Jefferies declined to $773,500,000 and the aggregate market value of the Company's investment in ACF declined to $206,100,000. If the aggregate market values of these investments remains unchanged at December 31, 2008, these declines in market value would result in the recognition of an aggregate unrealized loss during the fourth quarter of $440,100,000. Further declines in market values are also possible, which would result in the recognition of additional unrealized losses in the consolidated statements of operations.

Parent Company Liquidity

In addition to cash and cash equivalents, the Company also considers investments classified as current assets and investments classified as non-current assets on the face of its consolidated balance sheet as being generally available to meet its liquidity needs. Securities classified as current and non-current investments are not as liquid as cash and cash equivalents, but they are generally convertible into cash within a short period of time. As of September 30, 2008, the sum of these amounts aggregated $2,606,600,000. However, since $744,500,000 of this amount is pledged as collateral pursuant to various agreements, represents investments in non-public securities or is held by subsidiaries that are party to agreements which restrict the Company's ability to use the funds for other purposes (including the Inmet shares), the Company does not consider those amounts to be available to meet the Parent's liquidity needs. The $1,862,100,000 that is available is comprised of cash and short-term bonds and notes of the U.S. Government and its agencies, U.S. Government-Sponsored Enterprises and other publicly traded debt and equity securities (including the Company's $1,026,500,000 investment in Fortescue common shares). The investment income realized from the Parent's cash, cash equivalents and marketable securities is used to meet the Parent company's short-term recurring cash requirements, which are principally the payment of interest on its debt and corporate overhead expenses.

From time to time in the past, the Company has accessed public and private credit markets and raised capital in underwritten bond financings. The funds raised have been used by the Company for general corporate purposes, including for its existing businesses and new investment opportunities. However, given the current ongoing turmoil in the credit markets, if the Company were to try to raise funds through an underwritten bond offering it would be at a higher interest rate than in the past, or with terms that the Company may not find acceptable. The Company has no current intention to seek additional financing, and will rely on its existing liquidity to fund corporate overhead expenses, corporate interest payments and for investing opportunities. The Parent's senior debt obligations are rated two levels below investment grade by Moody's Investors Services and one level below investment grade by Standard & Poor's and Fitch Ratings. Ratings issued by bond rating agencies are subject to change at any time.

As of September 30, 2008, the Company had acquired approximately 28% of the outstanding voting securities of ACF, a company listed on the NYSE, for aggregate cash consideration of $405,300,000 ($70,100,000 was invested as of December 31, 2007). ACF is an independent auto finance company that is in the business of purchasing and servicing automobile sales finance contracts, predominantly to consumers who are typically unable to obtain financing from other sources. ACF has historically funded its auto lending activities through the transfer of loans in securitization transactions. The Company has entered into a standstill agreement with ACF for the two year period ending March 3, 2010, pursuant to which the Company has agreed not to sell its shares if the buyer would own more than 4.9% of the outstanding shares, unless the buyer agreed to be bound by terms of the standstill agreement, to not increase its ownership interest to more than 30% of the outstanding ACF common shares, and received the right to nominate two directors to the board of directors of ACF. ACF also entered into a registration rights agreement covering all of the common shares owned by the Company. At September 30, 2008, the Company's investment in ACF is carried at fair value of $331,400,000; the investment in ACF is one of two eligible items for which the Company elected the fair value option described in SFAS 159.

In March 2008, the Company increased its equity investment in the common shares of IFIS, a private company that primarily invests in operating businesses in Argentina, from approximately 3% to 26% for an additional cash investment of $83,900,000. At September 30, 2008, the Company's aggregate investment in IFIS was classified as an investment in an associated company and is accounted for under the equity method of accounting. IFIS owns a variety of investments, and its largest investment is approximately 32% of the outstanding common shares of Cresud, an Argentine agricultural company involved in a range of activities including crop production, cattle raising and milk production. Cresud's common shares trade on the Buenos Aires Stock Exchange (Symbol: CRES); in the U.S., Cresud trades as American Depository Shares or ADSs (each of which represents ten common shares) on the NASDAQ Global Select Market (Symbol: CRESY). Cresud is also indirectly engaged in the Argentine real estate business through its approximate 42% interest in IRSA, a company engaged in a variety of real estate activities in Argentina including ownership of residential properties, office buildings, shopping centers and luxury hotels. IRSA's common shares also trade on the Buenos Aires Stock Exchange (Symbol: IRSA); in the U.S., IRSA trades as ADSs on the NYSE (Symbol: IRS).

The Company also acquired a direct equity interest in Cresud for an aggregate cash investment of $54,300,000. The Company owns 3,364,174 Cresud ADSs, representing approximately 6.7% of Cresud's outstanding common shares, and currently exercisable warrants to purchase 11,213,914 Cresud common shares (or 1,121,391 Cresud ADSs) at an exercise price of $1.68 per share. The Company's direct investment in Cresud is classified as a non-current available for sale investment and carried at fair value.

As a result of significant declines in quoted market prices for Cresud and other investments of IFIS, combined with declines in worldwide food commodity prices, the global mortgage and real estate crisis and political and financial conditions in Argentina, the Company has determined that its investments in IFIS and Cresud ADSs were impaired at September 30, 2008. As of September 30, 2008, the fair value of the Company's investment in IFIS was determined to be $41,800,000, resulting in an impairment charge of $36,100,000 for the three and nine month periods ended September 30, 2008. This charge is in addition to the Company's share of IFIS's operating losses, which were $8,100,000 and $8,400,000 for the three and nine month periods ended September 30, 2008, respectively. As of September 30, 2008, the fair value of the Company's investment in Cresud ADSs was determined to be $35,300,000, resulting in an impairment charge of $14,300,000 for the three and nine month periods ended September 30, 2008.

The fair values of IFIS and Cresud's securities were determined using quoted market prices at September 30, 2008, as required under GAAP. Subsequent to September 30, 2008, these quoted market prices have continued to decline, and if these prices remain the same at December 31, 2008 the Company may record additional impairments during the fourth quarter. If the Company had used quoted market prices on November 3, 2008 to calculate the impairment charges as of September 30, 2008 (which is not permitted under GAAP), an additional charge of approximately $44,200,000 would have been recorded.

In April 2008, the Company sold to Jefferies 10,000,000 of the Company's common shares, and received 26,585,310 shares of common stock of Jefferies and $100,021,000 in cash. The Jefferies common shares were valued based on the closing price of the Jefferies common stock on April 18, 2008, the last trading date prior to the acquisition ($398,248,000 in the aggregate). Including shares acquired in open market purchases during 2008, as of September 30, 2008 the Company owns an aggregate of 48,585,385 Jefferies common shares (approximately 30% of the Jefferies outstanding common shares) for a total investment of $794,400,000. At September 30, 2008, the Company's investment in Jefferies is carried at fair value of $1,088,300,000. Jefferies, a company listed on the NYSE (Symbol: JEF), is a full-service global investment bank and institutional securities firm serving companies and their investors.

In addition, the Company entered into a standstill agreement, pursuant to which for the two year period ending April 21, 2010, the Company agreed, subject to certain provisions, to limit its investment in Jefferies to not more than 30% of the outstanding Jefferies common shares and to not sell its investment, and received the right to nominate two directors to the board of directors of Jefferies. Jefferies also agreed to enter into a registration rights agreement covering all of the Jefferies shares of common stock owned by the Company.

The Jefferies shares acquired, together with the Company's representation on the Jefferies board of directors, enables the Company to qualify to use the equity method of accounting for this investment. The Company's investment in Jefferies is one of two eligible items for which the fair value option identified in SFAS 159 was elected, commencing on the date the investment became subject to the equity method of accounting.

As more fully described in the 2007 10-K, during 2007 the Company and Jefferies formed Jefferies High Yield Holdings, LLC ("JHYH"), a newly formed entity, and the Company and Jefferies each committed to invest $600,000,000. The Company has invested $350,000,000 in JHYH and was initially committed to an additional investment of $250,000,000, subject to Jefferies prior request. Any request for additional capital contributions from the Company will now require the consent of the Company's designees to the Jefferies board.

As discussed above, in April 2008, the Lake Charles Harbor & Terminal District of Lake Charles, Louisiana sold $1,000,000,000 in tax exempt bonds which will support the development of a $1,600,000,000 petroleum coke gasification plant project currently being developed by the Company's wholly-owned subsidiary, Lake Charles Cogeneration LLC ("LCC"). LCC does not currently have access to the bond proceeds, which are currently being held in an escrow account by the bond trustee, and it will not have access to the bond proceeds until certain conditions are satisfied. The Company is not obligated to make equity contributions to LCC to fund a portion of the project's costs until it completes its investigation and the project is approved by the Company's board of directors. Upon the completion of pending permitting, regulatory approval, design engineering and the satisfaction of certain other conditions of the financing agreements, the bonds will be remarketed for a longer term and the proceeds will be released to LCC to use for the payment of development and construction costs for the project. Once all conditions have been met and LCC begins to draw down on the bond proceeds, any amounts drawn will be recorded as long-term indebtedness of LCC.

In September 2008, the Company invested an additional $20,000,000 in Sangart upon its exercise of certain existing warrants, which increased its ownership interest to approximately 89%. The Company expects to invest up to an additional $28,500,000 in late 2008 or early 2009 upon the exercise of its remaining warrants.

Consolidated Statements of Cash Flows

Net cash flows used for operations were $39,800,000 in the nine month period ended September 30, 2008 as compared to $5,100,000 in the nine month period ended September 30, 2007. The change reflects a use of funds for increased interest expense payments, increased funds generated from the trading portfolio and increased distributions of earnings from associated companies. Funds used for operating activities during 2008 include the results of companies acquired during 2007, STi Prepaid and ResortQuest, and the results of Premier following its reconsolidation in the third quarter of 2007. STi Prepaid's telecommunications operations generated funds from operating activities of $12,600,000 and $23,200,000 during the 2008 and 2007 periods, respectively, the Company's property management and services segment used funds of $4,600,000 and $1,900,000 during the 2008 and 2007 periods, respectively, Premier generated funds of $10,400,000 in 2008 and used funds of $11,400,000 in 2007 and the Company's manufacturing segments generated funds of $23,000,000 and $15,300,000 in the 2008 and 2007 periods, respectively. The net change in restricted cash principally results from the receipt of rental deposits at ResortQuest. Funds used by Sangart, a development stage company, increased to $25,500,000 during the 2008 period from $16,600,000 during the 2007 period. In 2008, distributions from associated companies principally include earnings distributed by Shortplus ($50,000,000), JHYH ($4,300,000), Jefferies ($5,500,000) and Goober Drilling, LLC ("Goober Drilling") ($12,800,000). In 2007, distributions from associated companies principally include earnings distributed by Jefferies Partners Opportunity Fund II, LLC ("JPOF II") ($29,200,000) and EagleRock Capital Partners (QP), LP ("EagleRock") ($15,000,000).

Net cash flows used for investing activities were $453,900,000 in the nine month period ended September 30, 2008 and $816,600,000 in the nine month period ended September 30, 2007. During 2007, acquisitions, net of cash acquired, principally include assets acquired by STi Prepaid ($84,900,000) and ResortQuest ($9,700,000) and cash acquired upon the reconsolidation of Premier ($19,900,000). Investments in associated companies include Jefferies ($396,100,000), ACF ($335,200,000), IFIS ($83,900,000) and Cobre Las Cruces, S.A. ("CLC") ($35,900,000) in 2008 and JHYH ($250,000,000), Pershing Square
($200,000,000), Goober Drilling ($105,000,000), RCG Ambrose, L.P. ("Ambrose")
($75,000,000), Highland Opportunity Fund L.P. ("Highland Opportunity")
($74,000,000), Shortplus ($25,000,000), CLC ($36,700,000) and Premier ($160,500,000) in 2007. Capital distributions from associated companies include $19,300,000 from Safe Harbor Domestic Partners L.P. ("Safe Harbor"), $27,200,000 from Goober Drilling, $40,000,000 from Highland Opportunity, $65,600,000 from Ambrose and $12,500,000 from EagleRock in the 2008 period and $25,000,000 from Safe Harbor in the 2007 period.

Net cash provided by financing activities was $198,900,000 in the nine month period ended September 30, 2008 and $1,229,600,000 in the nine month period ended September 30, 2007. Issuance of long-term debt for the 2007 period reflects the issuance of $500,000,000 principal amount of the Company's 7 1/8% Notes (net of issuance expenses) and $500,000,000 principal amount of the Company's 8 1/8% Notes (net of issuance expenses); the 2008 and 2007 periods also reflect increases in repurchase agreements of $35,100,000 and $3,200,000, respectively. Issuance of common shares for the nine month period ended September 30, 2008 principally reflects cash consideration received on the sale to Jefferies of 10,000,000 of the Company's common shares, which is discussed above. Issuance of common shares for 2007 principally reflects the issuance and sale of 5,500,000 of the Company's common shares. In addition, issuance of common shares for 2008 and 2007 reflects the exercise of employee stock options.

Critical Accounting Estimates

The Company's discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires the Company to make estimates and assumptions that affect the reported amounts in the financial statements and disclosures of contingent assets and liabilities. On an on-going basis, the Company evaluates all of these estimates and assumptions. The following areas have been identified as critical accounting estimates because they have the potential to have a material impact on the Company's financial statements, and because they are based on assumptions which are used in the accounting records to reflect, at a specific point in time, events whose ultimate outcome won't be known until a later date. Actual results could differ from these estimates.

Income Taxes - The Company records a valuation allowance to reduce its deferred tax asset to the amount that is more likely than not to be realized. If in the future the Company were to determine that it would be able to realize its deferred tax asset in excess of its net recorded amount, an adjustment would increase income in such period or, if such determination were made in connection with an acquisition, an adjustment would be made in connection with the allocation of the purchase price to acquired assets and liabilities. If in the future the Company were to determine that it would not be able to realize all or part of its deferred tax asset, an adjustment would be charged to income in such period. As required under GAAP, the determination of the amount of the valuation allowance required is based, in significant part, upon the Company's projection of future taxable income, which the Company is required to periodically reassess as circumstances warrant.

During the second quarter of 2008, the Company's revised projections of future taxable income enabled it to conclude that it is more likely than not that it will have future taxable income sufficient to realize an additional portion of the Company's net deferred tax asset; accordingly, $222,200,000 of the deferred tax valuation allowance was reversed as a credit to income tax expense. The Company's conclusion that this additional portion of the deferred tax asset is more likely than not to be realized reflects, among other things, the projected income to be earned from the sale of 10,000,000 common shares of the Company in April 2008, and is strongly influenced by its historical ability to generate significant amounts of taxable income and its projections of future taxable income. In addition, as a result of the increased projected taxable income in certain state and local taxing jurisdictions, during the second quarter the Company recognized additional state and local net operating loss carryforward benefits of $12,500,000 as a reduction to income tax expense. The Company's estimate of future taxable income considers all available evidence, both positive and negative, about its current operations and investments, includes an aggregation of individual projections for each material operation and investment, estimates apportionment factors for state and local taxing jurisdictions and includes all future years that the Company estimated it would have available net operating loss carryforwards. As more fully discussed above, the Company has large investments in certain publicly traded companies, all of which have experienced significant market price volatility subsequent to September 30, 2008. When evaluating its projection of future taxable income, declines in market value represent negative evidence the Company considers as it assesses the carrying amount of the deferred tax valuation allowance. The Company believes that its estimate of future taxable income is reasonable but inherently uncertain, and if the Company realizes unforeseen material losses in the future, or its ability to generate future taxable income necessary to realize a portion of the deferred tax asset is materially reduced, additions to the valuation allowance could be recorded. At September 30, 2008, the balance of the deferred tax valuation allowance was approximately $80,000,000, principally to reserve for net operating losses that are not available to offset income generated by other members of the Company's consolidated tax return group.

Impairment of Long-Lived Assets - In accordance with Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate, in management's judgment, that the carrying value of such assets may not be recoverable. When testing for impairment, the Company groups its long-lived assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities (or asset group). The determination of whether an asset group is recoverable is based on management's estimate of undiscounted future cash flows directly attributable to the asset group as compared to its carrying value. If the carrying amount of the asset group is greater than the undiscounted cash flows, an impairment loss would be recognized for the amount by which the carrying amount of the asset group exceeds its estimated fair value. The Company did not recognize any impairment losses on long-lived assets during the nine month periods ended September 30, 2008 and 2007.

Impairment of Securities - Investments with an impairment in value considered to be other than temporary are written down to estimated fair value. The write-downs are included in net securities gains (losses) in the consolidated statements of operations. The Company evaluates its investments for impairment on a quarterly basis.

The Company's determination of whether a security is other than temporarily impaired incorporates both quantitative and qualitative information; GAAP requires the exercise of judgment in making this assessment, rather than the application of fixed mathematical criteria. The Company considers a number of factors including, but not limited to, the length of time and the extent to which the fair value has been less than cost, the financial condition and near term prospects of the issuer, the reason for the decline in fair value, changes in fair value subsequent to the balance sheet date, the ability and intent to hold investments to maturity, and other factors specific to the individual investment. The Company's assessment involves a high degree of judgment and accordingly, actual results may differ materially from the Company's estimates and judgments. The Company recorded impairment charges for securities of $61,300,000 and $400,000 for the three month periods ended September 30, 2008 and 2007, respectively, and $74,900,000 and $900,000 for the nine month periods ended September 30, 2008 and 2007, respectively.

Business Combinations - At acquisition, the Company allocates the cost of a business acquisition to the specific tangible and intangible assets acquired and liabilities assumed based upon their relative fair values. Significant judgments and estimates are often made to determine these allocated values, and may include the use of appraisals, consider market quotes for similar transactions, employ discounted cash flow techniques or consider other information the Company believes relevant. The finalization of the purchase price allocation will typically take a number of months to complete, and if final values are materially different from initially recorded amounts adjustments are recorded. Any excess of the cost of a business acquisition over the fair values of the net assets and liabilities acquired is recorded as goodwill, which is not amortized to expense. Recorded goodwill of a reporting unit is required to be tested for impairment on an annual basis, and between annual testing dates if events or circumstances change that would more likely than not reduce the fair value of a reporting unit below its net book value.

Subsequent to the finalization of the purchase price allocation, any adjustments to the recorded values of acquired assets and liabilities would be reflected in the Company's consolidated statements of operations. Once final, the Company is not permitted to revise the allocation of the original purchase price, even if subsequent events or circumstances prove the Company's original judgments and estimates to be incorrect. In addition, long-lived assets like property and equipment, amortizable intangibles and goodwill may be deemed to be impaired in the future resulting in the recognition of an impairment loss; however, under GAAP the methods, assumptions and results of an impairment review are not the same for all long-lived assets. The assumptions and judgments made by the Company when recording business combinations will have an impact on reported results of operations for many years into the future.

Use of Fair Value Estimates - Substantially all of the Company's investment portfolio is classified as either available for sale or as trading securities, . . .