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Technology Stocks : GX Investors Thread
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To: devonian who wrote (538)2/14/2002 10:22:09 AM
From: CYBERKEN   of 586
 
<<Without debt financing, most shareholders wouldn't get the higher long term returns they do.>>

That's true, without a doubt, and any current debt in distressed companies shouldn't be devalued by changing the rules retroactively.

For the coming debate on general reforms-which is compelled by the new circumstance that 80% of voters today are invested in the equity markets-a priority will be placed on the prevention of management ignoring their fiduciary duties and endangering their shareholders' capital through excessive junk-level financing. In a review of Chapter 11 rules, a safety net for common equity holders would accomplish a public policy need by forcing into the equation the real possibilities of junk holders being wiped out while equity holders are allowed to suffer severe losses and still survive.

In general, anything-from taxes to onerous regulation-that reduces the probability of capital formation is an economic negative. But, like all such economic arguments, the assumption that executives working diligently to protect equity holders' capital has to be assumed. Enron, GX, and several other recent bankruptcy filings-many of dubious necessity-have brought the deficiency of executive integrity into a heavy public spotlight. There is thus a very strong possibility that junk bond investors will be drafted in this new war against executive terrorism. For better or worse, that seems to be a direction in which we will now move. The debate should be interesting...
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