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Strategies & Market Trends : Booms, Busts, and Recoveries
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To: GraceZ who wrote (13402)1/13/2002 3:23:38 PM
From: Ahda  Read Replies (1) of 74559
 
Notice now that equity capital is no longer cheap, companies are now using the debt markets to raise capital. When that becomes too expensive (and it will even though the Fed is trying to artificially hold down the cost of money, again) they will be left with the other option, funding growth from operations. Its a self correcting mechanism that would have corrected itself far sooner and with far less pain if the Fed had stopped interfering in the pricing of money.

First you have to define the company in a public company it is not always conventional debt that starts the initial ball rolling. The loan comes from private investment the private investment is secured in a non tradeable issue of stock that at a set date providing the company goes public now become tradeable.

The fed here has nothing to do with the original loans that are issued as those loans in some companies come from any and all corners or the world. The Feds major impact here has been to create inflation in wages under the assumption they could increase prosperity. Europe faced a similar problems as wages were too high in contrast to the US dollar who exceeded most other dollars value prior to global economy competition.

Seed money is what Dak is talking about. The investing group knows exactly what it is doing and how large the return can be for them . It is not just the least expensive way to get capital sometimes it is the only way to get capital. The problem surfaces when people purchase some small cap stocks and over the counter issues and find there investments have divested them of capital. It amounts to the legal taking of funds from the public who don't realize how limited their chance of return is.

Issuing paper (stock certificates) is one of the ways companies solve debt problems. It is not all that simple but it is done all the time. The return can be vast and it costs very little in terms of real dollars to your company, mostly it is your litigation fees. The return for the investors for investment in you can be huge as the paper can increase significantly. These people are shrewd they usually recoup the original investment they make in you very rapidly and if you make it they really rake in a bundle on warrants and other goodies attached to the loan.

There is no self correcting mechanism in this world it is ad infinitum as the world is filled with investment bankers not just in the US. The only self correcting mechanism is just how good our laws are that really becomes the only question as to how good the argument is to prove the law states that which it does not state.

In this was a protected economy you would be right.
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