Ekonomix
http://turkeconomy.blogspot.com/

This represents a good hedge against the victory of “Soak-the-Rich” Democrats. I would expect the more normal relationship between taxable and tax free investments to return as the market wends its way out of this crisis. Even more so if worse comes to worst in November. (see the intrade box on the left side of this page for the odds on that). If rates stay where they are, a profit may be made. If they go up, you may have a hedge.

The most difficult part for investors is that debt has a long time horizon, so if the company is losing money now, why will it turn around in the future? Is the company even viable?

Interesting comment in light of the quote above about “highly rated financial institutions” like Amex ;-)

The sequence of events is indeed quite backwards. You are essentially financing a past loss and you now have to earn enough money to pay off the loss plus interest.

Basically funds in the door from operations, sale of debt, sale of stock, sales of parts of the business, etc… isn’t “earmarked” for specific operations. It all goes against the overall cash flow of the business. When you have a lot of losses, then your cash goes against the losses and you have to raise money from somewhere (investors, other businesses if you sell part of your business, customers, etc..) and then the debt is part of this pot.

The most difficult part for investors is that debt has a long time horizon, so if the company is losing money now, why will it turn around in the future? Is the company even viable?

Another complex part of the question is that people don’t KNOW about losses in these financial assets in a concrete way. There are assets that MIGHT go bad, such as a particular type of loan, or it might not. When everything was fine in 2005-6 no one was really thinking everything was going to go bust, but now the sentiment is much darker, and they need to look at those assets again in a new light.

Many of the “knuckleheads” are not around anymore. One nice part of our financial system is that due to quarterly reporting they have to come clean and most of the heads of these major banks are gone. If you look at “all posts for Carl from Chicago” you can see my post on quarterly reporting.

Raising capital to pay for pending/expected losses seems odd, but isn’t it just that the sequence of events is backwards? I mean, if the company issues bonds to invest in the business and that investment fails miserably, doesn’t the company, in essence, have a loss to be paid off? Or in fact, was paid off prior to the loss?

Personally, if I was buying debt and I was covering for losses, I would like to know why those losses occurred and if the knuckleheads behind them are still hanging around.

Yea, my poker buddies aren’t to keen on that either.