Romney tax returns released...

Started Sep 21, 2012 | Discussions thread
lownine
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Re: There's investment income, and there's "investment income"
In reply to Chato, Sep 24, 2012

Chato wrote:

lownine wrote:

Chato wrote:

A person invests in the creation of a factory producing goods and/or services. They take the risk of this new company florishing or going broke. But the company produces things, hires people, pays suppliers. It's suppliers hire people, it's employee's spend their wages, and it's money circulates into the economy.

Then there's the person who invests in triple AAA rated junk bonds made out of converted mortgages or credit card loans. The money produces... nothing.

I'm not sure that's true. (I assume you're talking about the bond principal and not the interest it pays?) It produces housing bubbles because it allows lenders to convert assets (loans) into cash so they can make more loans to people who should have been steered to the teller that handles Christmas Club accounts. But not any more. Once the lenders didn't want to know if you were from this planet. Now they want to know why you cancelled that TV Guide subscription back in 1988.

These Bonds, rated Triple AAA by Moody's paid enourmous interest.

I'm pretty sure there's no such thing as an AAA bond that pays "enormous" interest, although 4 percent is starting to look pretty enormous. If I could find one - and I've looked - I'd be all over that. Any bond issued with a AAA rating is going to yield something representative of AAA. Once the AAA was discovered to be, well...let's be charitable, not representative of the underlying risks, those ratings changed and the price of the bond plummetted thereby increasing the yield. That yield only went to those who bought the thing after the veneer was peeled away to reveal the odiferous steam wafting out of the innards. Someone who walks out to the end of the twig is going to ask to be properly compensated.

The real harm came from AIG and other who followed their lead. It's one thing to buy a bond representing the dream of home ownership only to discover it actually represented the limits of that dream. It's quite another to sell insurance on those bonds - bond they didn't even create, own, or sell - and to sell it at a cheap price thinking they couldn't miss on boring, old, risk-free home loans. Mortgages! Picket fences, dog in the yard, "Honey, I'm home!" This is plain vanilla. We know how mortgages perform. A few problems, but mostly just boring.

If I could take present knowledge into a time machine with me and go anywhere, I think it might be on my short list to go back to 2006 - 2007 and buy, buy, buy as much of that insurance as I could. Considering the duration of the investment, that would beat Apple at $6 a share.

Sub-Prime loans are still being made...

No doubt the massive frauds of the BB (Before Bust) perpetrated by lending institutions are no longer occuring - But then again, morgage bonds are not in big demand.

Do you really think these people have learned anything? Sorry, no, recent events at JP Morgan lead me to believe otherwise. And the fact they've stashed away twenty or thirty trillion dollars, tells me that don't know what to do with their money. A loan for a new start -up company simply doesn't pay as much as investing in a "Financial Insterment." And as long as we allow these ponzi schemes to continue, that's the only investment these people are interested in.

BTW: Many small companies are incorporated, but they don't issue stock. I work for such a company, my employer is a 100 percent owner off the shares.

Yes, that's precisely what I meant. The private ownership can be vested in a single individual or a group of individuals. I think the point is that it is owned and that ownership can arise from having created it from nothing at his dining room table or it can have been transferred through compensation.

Dave

The money gets stashed in the Cayman Islands or Switzerland. No one is hired, nothing is produced, and the risks are all born by the tax payers. Parasite!

Dave

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