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Do you have any specific questions? I would be happy to answer them.

by brentr 19y ago

maximilian 19y ago
Hmm.. I do. Lemme look through some of the articles again and think about my questions more. They talk a lot about loans backed by securities and bonds and whatnot. I'm reading Greenspan's new book and I'm a little confused about what securities and bonds. I think a bond is something I can buy (from the fed) that says, "If you buy this now, I will pay you it back with 5% interest in x years" - But are there more examples of bonds? Can I buy them from companies? (I can be me, or a company) I'm also confused as to why exactly bear-sterns tanked. If I'm reading correctly they basically had a lot of loans that people called in that they couldn't pay. But why did all these loans all get called in at once?
- brentr 19y ago
  A bond is a form of debt. A simple example of how a bond works is as follows: Company X needs to raise $1 million for whatever reason. Company X decides to borrow the money instead of accepting new equity holders. For mathematical simplicity, let's assume that there is only one person willing to lend the money. The terms of the bond are five years, 10% coupon, paid semi-annually, and no other provisions. What this means is in five years time, the company will pay back the $1 million they borrowed. In the intervening years, Company X will pay $50,000 ($1 million X 10% / 2) twice a year to the investor; this is the interest owed on the money borrowed. There are many other provisions that the bond could carry. Some bonds are convertible. This means that the person who lent the money could choose to convert the bond to Company X's stock at a specified price or ratio. Some bonds are callable. This means that Company X can choose to buy back the bonds before the five years are up. Some bonds have no intervening interest payments at all. The investor gets the equivalent of interest by buying the bond at a discount based upon prevailing market rates. The main reason given for the final breaking of Bear was a sudden loss of confidence among its hedge fund clients. The clients were afraid Bear would not be able to cover the amount the clients had invested with the fund should they choose to withdraw their money. It was the equivalent of a run on a retail bank but in the investing world instead.

Do you have any specific questions? I would be happy to answer them.

by brentr 19y ago

Do you have any specific questions? I would be happy to answer them.

Hmm.. I do. Lemme look through some of the articles again and think about my questions more. They talk a lot about loans backed by securities and bonds and whatnot. I'm reading Greenspan's new book and I'm a little confused about what securities and bonds. I think a bond is something I can buy (from the fed) that says, "If you buy this now, I will pay you it back with 5% interest in x years" - But are there more examples of bonds? Can I buy them from companies? (I can be me, or a company) I'm also confused as to why exactly bear-sterns tanked. If I'm reading correctly they basically had a lot of loans that people called in that they couldn't pay. But why did all these loans all get called in at once?

brentr 19y ago
A bond is a form of debt. A simple example of how a bond works is as follows: Company X needs to raise $1 million for whatever reason. Company X decides to borrow the money instead of accepting new equity holders. For mathematical simplicity, let's assume that there is only one person willing to lend the money. The terms of the bond are five years, 10% coupon, paid semi-annually, and no other provisions. What this means is in five years time, the company will pay back the $1 million they borrowed. In the intervening years, Company X will pay $50,000 ($1 million X 10% / 2) twice a year to the investor; this is the interest owed on the money borrowed. There are many other provisions that the bond could carry. Some bonds are convertible. This means that the person who lent the money could choose to convert the bond to Company X's stock at a specified price or ratio. Some bonds are callable. This means that Company X can choose to buy back the bonds before the five years are up. Some bonds have no intervening interest payments at all. The investor gets the equivalent of interest by buying the bond at a discount based upon prevailing market rates. The main reason given for the final breaking of Bear was a sudden loss of confidence among its hedge fund clients. The clients were afraid Bear would not be able to cover the amount the clients had invested with the fund should they choose to withdraw their money. It was the equivalent of a run on a retail bank but in the investing world instead.