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View Diary: Why Larry Frigging Summers is "failing upwards" (88 comments)

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  •  Is there some basis in reason? (2+ / 0-)
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    Mr Robert, Dburn

    Bonds confuse the heck out of me, but in general if you lend me $1,000 and I give you a note that I will pay it back in 1 year, and then months later, someone buys that note (in a liquid market) from you for $800, can't I also buy that note from the same person for $800 if value holds or $700 or less if it goes down, meaning I'm really not paying back or on the hook for $1,000? I'll just never be on the hook for more than that? Or am I missing something? THANK YOU.

    •  I don't think (0+ / 0-)

      there is anything stopping a company from buying it's own bonds back at a discount but there is a fraud angle to consider which may stop some companies from doing it.

      If you issue debt and obligate yourself to paying the face amount when you know your financial condition is weakening and that the ratings agencies are likely to downgrade your debt, it would look a tad suspicious if you issued debt, kept the cash, waited for it to get down rated and then used a fraction (large or small of the initial proceeds ) to retire the debt.

      Even in shady Wall Street the criminals have some standards in that's it hard to sell bonds to people once the rep of the company gets around.  I can also imagine a situation where the same bank might short the bonds buying derivatives like a credit default swap. Debt doesn't have to go bad in order to make money on swaps. If the credit is downgraded then the value of the swaps go up. Then the "buy low, sell high" adage comes into play.  

      It's also helpful if they have inside info too which I understand is available for a price.  Just because yields are bad for the ordinary person, doesn't mean people aren't making a great deal on bonds. It's a huge market. Much bigger than the stock market. Bill Gross at Pimco funds was returning around 10% a year in bonds and he is  handling 100s of billions in one fund. The total amount invested in Pimco funds measures in the millions. Bill Gross can move markets.

      He seemed to "know" when to go big on certain types of bonds at the right time. Although lately he has probably gotten some out flow. The lowest year I saw was 6% the last time I looked.  Minimum opening balance is one million dollars.

      “ Success has a great tendency to conceal and throw a veil over the evil of men. ” — Demosthenes

      by Dburn on Wed Jul 24, 2013 at 10:36:01 PM PDT

      [ Parent ]

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