> [Negative amortization mortgages strike me as a symptom of a serious
> credit bubble; here's some more evidence. So Jordan, is a torrent of
> Caa paper nothing to worry about either?]
I'm not sure where you're headed with this; my points about negative amortization, I think, stand unchallenged by you. In the next chapter of shifting the subject, you'd like my opinion on the latest proliferation of junk bonds. I frankly love to see junk hit the streets, because it usually means that everyone's crazy idea can get funded. I couldn't care less if some speculator loses his shirt by investing in risky credit. Presumably, these important points from the article are in force:
> The absence of default reflects the fact that corporate profits are
> generally in good shape.
When everything is going swell, yields are low; it's a seller's market. Bad news for those whose livlihood depends on buying bonds. Like we have to care about them? And so:
> "They are really bad credits," said Michael Lewitt, the president of
> Harsh Capital Management, a bond manager. "But people feel they have
> to get yield somewhere."
When you've got a bag full of good credit, and it's not 'working' for you, you basically have no choice but to try to increase your yield. And if it falls apart, it's probably okay: not everything you touch turns to shit, and net/net, you're (probably) raised your yield. Everyone wins :-)
> Typically most bonds rated that low when they are issued default
> within a few years. Consider the class of 1998, the last year large
> quantities of such bonds were sold. More than 40 percent of the bonds
> defaulted within three years, and by now 74 percent of them have done
> so.
And the 26% that didn't more than made up for it.
So I guess you're getting around to this:
> "Never before," said James Grant, the editor of Grant's Interest Rate
> Observer, "have junk-bond investors been paid so little for risking
> so much."
And never before have so many people owned their own homes, and never before have we seen so much credit card debt out there; never before have so many people been fed by so few farms. Is this a 'problem' ...? Not on the face of it. It might be a problem sometime, someday, but it's not, just because it's new, a problem. Every time something hits a 'new statistical high/low' it's supposed to be the end of the world? You think I have a quaint faith in rational markets (I guess, in the large, but it's not really my schtick) but I think you have a quaint fear of regression to the mean.
Some things do change, afterall!
So let me answer directly: no, it's not 'nothing to worry about' -- afterall, it's different. But is it a crisis, or a bubble waiting to burst? I'm not so sure. Wall Street, as they say, recycles failure. It's kind of like fires and the forest: without fires, there's no forest.
/jordan