more data

Doug Henwood dhenwood at
Tue Mar 16 08:21:16 PST 1999

Charles Brown wrote:

>So, by buying up a lot of their own stock, they cause the stock prices to
>go up ? Does the debt impact the stock market prices too ? Is the debt in
>the form of bonds ?

Bonds first (accounting for bit over a third of the increase in debt since 1994), banks next.

>Do banks benefit the most from more debt ?

When the junk bond market collapsed in 1989, banks picked up a lot of the business. Firms generally prefer bonds because once creditors buy your paper they leave you alone, unless you end up in bankruptcy court; banks are much nosier and prone to give advice. As the junk market recovered over the last few years, banks have once again taken a back seat to junk. Vulture investor Wilbur Ross (who makes money picking over corporate corpses, thus the title) is very excited about the potential of the next down cycle.

>Is the fact that Reagan started running up the national debt about the
>same time unrelated ?

It encouraged the aggressive use of debt in the 1980s, but the conversion to prudence in public finance has yet to be imitated by the private sector in the late 1990s.

>What about the rise of consumer debt ?

Keeps rising, especially mortgages. I think there are a couple of things at work - 0-5% down purchases (encouraged by the Clinton administration in the interests of the American national religion of homeownership), and second mortgages (cheaper than MasterCard for routine consumption and cheaper than broker loans for speculating in stocks).

>I hate to ask a really elementary question, but what does speculating ..on
>margin mean ?

Buying a stock or other financial asset using borrowed money.

>Was there no pattern of retiring equity before 1982 ? What about raising
>debt ?

There have always been takeovers, but the corporate practice of buying your own stock to boost its price is relatively new. The scale of retirements since the early 1980s has no precedent in the flow of funds accounts, which go back to 1952 in the quarterly version and 1945 in the annual.

>Debt, debt, debt. Is this a predictable pattern in superdeluxe finance
>capitalism ?

There's always been debt, and as Zizek argued in the passage I posted the other week, it's only a fantasy that it'd ever be paid off. The point is that for all the reports of prudence in the 1990s, rising private (household and corporate) debt has done a lot to fuel the Clinton quasi-boom, and there are a lot of (household and corporate) units that are ill-prepared for rougher economic times.


More information about the lbo-talk mailing list