Comments on: The unsustainability of debt-for-equity conversion http://blogs.reuters.com/felix-salmon/2009/07/14/the-unsustainability-of-debt-for-equity-conversion/ A slice of lime in the soda Thu, 23 May 2013 23:51:59 +0000 hourly 1 http://wordpress.org/?v=3.4.2 By: James Raider http://blogs.reuters.com/felix-salmon/2009/07/14/the-unsustainability-of-debt-for-equity-conversion/comment-page-1/#comment-4303 James Raider Thu, 16 Jul 2009 22:33:34 +0000 http://blogs.reuters.com/felix-salmon/2009/07/14/the-unsustainability-of-debt-for-equity-conversion/#comment-4303 Goldman Sachs will be eternally grateful to Obama for staying out of its way. Goldman has an uncommon grasp of the joystick. This could be its letter of appreciation, ---- http://pacificgatepost.blogspot.com/2009/07/goldman-sachs-thank-you-mr-president.html Goldman Sachs will be eternally grateful to Obama for staying out of its way. Goldman has an uncommon grasp of the joystick.

This could be its letter of appreciation, —-

http://pacificgatepost.blogspot.com/2009  /07/goldman-sachs-thank-you-mr-presiden t.html

]]> By: carly http://blogs.reuters.com/felix-salmon/2009/07/14/the-unsustainability-of-debt-for-equity-conversion/comment-page-1/#comment-4198 carly Wed, 15 Jul 2009 14:34:42 +0000 http://blogs.reuters.com/felix-salmon/2009/07/14/the-unsustainability-of-debt-for-equity-conversion/#comment-4198 Doesn't seem right that Goldman can distribute that money before meeting its AIG obligations and maybe hiring back some of the 6000 people they laid off. There is a related post at http://iamsoannoyed.com/?page_id=588 Doesn’t seem right that Goldman can distribute that money before meeting its AIG obligations and maybe hiring back some of the 6000 people they laid off. There is a related post at http://iamsoannoyed.com/?page_id=588

]]> By: Millers Debt Guide http://blogs.reuters.com/felix-salmon/2009/07/14/the-unsustainability-of-debt-for-equity-conversion/comment-page-1/#comment-4159 Millers Debt Guide Tue, 14 Jul 2009 20:51:30 +0000 http://blogs.reuters.com/felix-salmon/2009/07/14/the-unsustainability-of-debt-for-equity-conversion/#comment-4159 I don't hear anyone saying 'that's too bad' here. These companies only have themselves to blame. They have caused the meltdown through their own greed. They saw what was coming but did nothing to stop it, and it is the people who will suffer. I don’t hear anyone saying ‘that’s too bad’ here. These companies only have themselves to blame. They have caused the meltdown through their own greed. They saw what was coming but did nothing to stop it, and it is the people who will suffer.

]]> By: Marc http://blogs.reuters.com/felix-salmon/2009/07/14/the-unsustainability-of-debt-for-equity-conversion/comment-page-1/#comment-4158 Marc Tue, 14 Jul 2009 20:50:55 +0000 http://blogs.reuters.com/felix-salmon/2009/07/14/the-unsustainability-of-debt-for-equity-conversion/#comment-4158 Of course you are right. You convert debt into equity, the equity is sold to someone who borrowed the money to buy it. The difference is, that this time the total nominal amount borrowed is less than last time. Of course that doesn't prevent GS or the borrower from ending up in much the same situation as this time around, since asset prices could continue to go down and economic misery may last a while. But assuming that real estate prices will continue to go down forever is just as dumb an assumption as believing they will never go down. Yes there are risks involved. There are always risks, good companies manage them, others pretend they don't exist. I say: take out the knife, slash the debts by converting them to equity. You may lose a lot, but also, you free up capital which you can put to work in a challenging environment. And that should be a capitalist's dream. Of course you are right. You convert debt into equity, the equity is sold to someone who borrowed the money to buy it. The difference is, that this time the total nominal amount borrowed is less than last time. Of course that doesn’t prevent GS or the borrower from ending up in much the same situation as this time around, since asset prices could continue to go down and economic misery may last a while. But assuming that real estate prices will continue to go down forever is just as dumb an assumption as believing they will never go down. Yes there are risks involved. There are always risks, good companies manage them, others pretend they don’t exist.
I say: take out the knife, slash the debts by converting them to equity. You may lose a lot, but also, you free up capital which you can put to work in a challenging environment. And that should be a capitalist’s dream.

]]> By: Murray http://blogs.reuters.com/felix-salmon/2009/07/14/the-unsustainability-of-debt-for-equity-conversion/comment-page-1/#comment-4147 Murray Tue, 14 Jul 2009 18:26:44 +0000 http://blogs.reuters.com/felix-salmon/2009/07/14/the-unsustainability-of-debt-for-equity-conversion/#comment-4147 For some commercial real estate properties and securities, it's not mortgages or underlying values that have been the big issue of late, it's the fear that the property of structure won't get refinanced, even if the current debt doesn't mature for three years or more For some commercial real estate properties and securities, it’s not mortgages or underlying values that have been the big issue of late, it’s the fear that the property of structure won’t get refinanced, even if the current debt doesn’t mature for three years or more

]]> By: Matt Lehrer http://blogs.reuters.com/felix-salmon/2009/07/14/the-unsustainability-of-debt-for-equity-conversion/comment-page-1/#comment-4140 Matt Lehrer Tue, 14 Jul 2009 17:29:16 +0000 http://blogs.reuters.com/felix-salmon/2009/07/14/the-unsustainability-of-debt-for-equity-conversion/#comment-4140 why are you assuming that 100% of their book is senior mortgages? I would guess more than 50% is mezz or higher in the stack. why are you assuming that 100% of their book is senior mortgages? I would guess more than 50% is mezz or higher in the stack.

]]> By: KenG http://blogs.reuters.com/felix-salmon/2009/07/14/the-unsustainability-of-debt-for-equity-conversion/comment-page-1/#comment-4135 KenG Tue, 14 Jul 2009 16:23:32 +0000 http://blogs.reuters.com/felix-salmon/2009/07/14/the-unsustainability-of-debt-for-equity-conversion/#comment-4135 Goldman is valuing their loans at a low number because they know the government will make them whole, even if they don't even default on them. I know it sounds ridiculous, but that's what they did with AIG's collateral. Maybe companies like Goldman can't perform the debt to equity swap, and maybe the conversion can't be performed within the US economy, but there are lots of dollars sitting outside the US that can be used to finance the conversion. The US has been running trade deficits for decades, and a trade deficit is just a measure of how much more we consume than we produce. That imbalance has to be paid for either by borrowing money or selling assets. We have been doing both, but over the past decade or so, it's been debt that has financed our consumption. The countries that hold all that debt also have lots of dollar reserves which they can use to buy assets or inject capital into firms to allow them to reduce their debt. Or, we can just print a few trillion dollars, give it away to firms like Goldman, and let them buy all of the distressed debt out there, and then sell it for a profit. We'll have inflation, but by that time Goldman will have moved all of their cash into other currencies. Goldman is valuing their loans at a low number because they know the government will make them whole, even if they don’t even default on them. I know it sounds ridiculous, but that’s what they did with AIG’s collateral.

Maybe companies like Goldman can’t perform the debt to equity swap, and maybe the conversion can’t be performed within the US economy, but there are lots of dollars sitting outside the US that can be used to finance the conversion. The US has been running trade deficits for decades, and a trade deficit is just a measure of how much more we consume than we produce. That imbalance has to be paid for either by borrowing money or selling assets. We have been doing both, but over the past decade or so, it’s been debt that has financed our consumption. The countries that hold all that debt also have lots of dollar reserves which they can use to buy assets or inject capital into firms to allow them to reduce their debt.

Or, we can just print a few trillion dollars, give it away to firms like Goldman, and let them buy all of the distressed debt out there, and then sell it for a profit. We’ll have inflation, but by that time Goldman will have moved all of their cash into other currencies.

]]>