> Bondholders actually lend working capital where stockholders,
> other than at new issues, do not. Also, bondholders are contractors
> with the firm, not owners. The question with bondholders is whether
> credit is issued in a restrictive environment, giving bondholders
> undue influence and allowing them to extract unreasonable interest.
> In principle, however, bondholding is not an oppressive
> relationship.
The capital raised by a bond offering will (or should be) used to
expand production, sure, but I don't find that a particularly
altruistic act on the part of those buying the offering. They're
doing it not out of the goodness of their hearts, but in expectation
of some favorable return on their investments. What makes bonds
pernicious to me is precisely that aren't owners, but creditors, and
the interest that bonds pay have prior claims on a companies earnings.
I guess a back-of-the-envelope Marxian take would be that the rate on
bonds set a floor on the rate of surplus rate; come rain or shine, the
capital raised by the offering must generate the interest specified on
the coupon, which means that the rate of exploitation can never fall
below a certain level. And if a legal contract that specifies a
guaranteed rate of exploitation isn't oppressive, then I don't know
what is.
--
Curtiss Leung