Good Credit Cures A Bad Economy

By Andrew Carpenter

Quote of the week: Every tree and plant in the meadow seemed to be dancing, those which average eyes would see as fixed and still. – Jalāl ad-Dīn Muhammad Rūmi

Here are four thoughts to trip over as we round yet another sharp corner on the path to economic recovery.

1) The perfect world arrived last summer.

Deregulated US banking, housing and financial sectors led to a world of no credit.

This is the era for which a vocal financial publishing crowd has been begging. No regulations. No credit. No borrowing. No more extra debt.

So, how are you enjoying their world… is it the paradise as outlined in the millions of pages in books penned by our betters who sniffed because hoi pathetic polloi lived on credit?

Of course, you know we’re about to wreck this beautiful Eden with a big bite out of the borrowing apple.

Me, I can’t wait to realize Eve is naked.

And, I sure wish the publisher John Wiley and Sons was publicly traded, because its presses are going to be cranking overtime.

2) As you’ll see, we don’t have this problem here at IDE, but here’s a huge economic truth, one that’s created a lot of hypocrisy lately.

If you buy a corporate bond, you are a creditor. You have lent a company your money – commercial paper, secured debt, unsecured debt, senior debt and subordinated debt – you hope you’ll be repaid at a tasty profit.

That’s different from when you buy a stock – a share. In that case you buy a share of the company.

A bond must be repaid, usually at an agreed upon amount.

If the company goes bankrupt – defaults on its repayment to you – you get in line, somewhere near the back, and hope to get some of your money back, while most shareholders are S.O.O.L.

This is the world of credit.

What the hell is wrong with that?

Even better, today, we’re told that corporate bonds are one of the world’s safest investments. Here at IDE, Steve McDonald has, what I am told, a great bond trading program.

You should check it out because to heck with Polonius, I want to be the lender… as long as the return is high.

But, while hypocrisies are delicious, you need to be aware that if you buy bonds you will need to cut the crap when it comes to credit and borrowing rhetoric.

You buy a corporate bond… you tout corporate bonds… then you can’t strut around and complain about a credit-wrecked US economy.

That’s more than okay with me. I’d rather hear you talk about your fat profits than listen to complaints about that which is out of your control.