Archive for April, 2009

  • The Failure of the Junk Bond Market
    , April 1st, 2009 at 9:52 am

    Steve Sailer writes on anti-usury laws and comments on the failure of the junk bond market:

    Also, a generation freed from limits on interest rates is typically going to push them too far, with widespread damage. We saw that with Mike Milken’s junk bonds back in the 1980s, which worked pretty well at first, but generated so much profit that ever junkier junk bonds came out, culminating in the 1991 recession.

    I have to disagree. Since junk bonds did so well during the 1980s, it suggests that credit had not been properly distributed and those who took the risk, were paid handsomely.
    As with many cases, the junk bond market was simply pushed to far, though that was happening. The big problem was that the junk bond market got a very big push from the government. The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (also known as Firrea) forced S&Ls to divest their junk bonds. That triggered an avalanche of selling which in led to the recession of 1990-91.
    Research has shown that junk bond issuers outperformed the rest of the economy in terms of job growth, sales and productivity.
    Incidentally, FIRREA also gave “both Freddie Mac and Fannie Mae additional responsibility to support mortgages for low- and moderate-income families.”

  • It Can’t Possibly Go Any Lower
    , April 1st, 2009 at 7:51 am

    After careful consideration, I’ve come to the conclusion that General Motors (GM) is a very strong buy.
    For more details, read here.