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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Thomas M. who wrote (41163)	12/28/1998 3:19:00 PM
From: Knighty Tin	Read Replies (1) \| Respond to of 132070

Tom, It actually works if the cos. receiving loans or issuing bonds at junk rates have the wherewithal to pay interest and the Fed is able to keep short rates low. The concept being that the profits from borrowing from the Fed emergency window and lending to Crapola, Inc. at a fat sread will strengthen the weak underpinnings of the shaky banks. However, going into a recession/depression, I don't think junk credits is where I'd want my money. I also don't know if Crapola, Inc. adding capacity during a glut makes them any more profitable. It may be the straw that turns the loans into non-performing. And, when lenders notice that the banks are loaded with junk credits, they are chary to lend to the banks, themselves. It can work if the economy in the world suddenly turns. And it will probably work in the short term as the banks will call even the suckiest loan a winner. But with most corps digging holes of capacity for themselves, it is more likely to extend the recession/depression and put the banks in jeopardy. MB