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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: ild who wrote (212254)1/3/2003 12:00:30 AM
From: ild  Read Replies (2) of 436258
 
...In the 2000s, weirdness will be encountered in transactions that cannot easily be explained or understood by the average citizen. The use of interest rate swaps and other derivatives will feature prominently. As an example, I give you the transaction with no underwriting fee, or ``spread,'' as it is called.

Understanding It All

Not too long ago, it used to cost $22 for every $1,000 of bonds an issuer wanted to sell. That cost has come down, to where it is now around $6 or $7. The reasons are many. Cutthroat competition probably covers them all.

What could be better than no fee at all? What could be better than paying for the costs upfront with an option to do a swap at some future point in time? What could be better than being asked by some regulator examining the transaction in an audit: ``By the way, did you ever wonder how the underwriter was getting paid?''

And not knowing the answer.

Call me old-fashioned. I think public finance should be able to be understood by the public.

bloomberg.com
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