In my blog entry this morning about Robert Shiller and his bonkers defense of subprime mortgages, I made an en passant reference to financial innovation being, net-net, a bad thing. I didn’t go into too much detail, because it wasn’t all that relevant to the point at hand, and because, as Sean Matthews pointed out, this question has been debated in the blogosphere in some depth in the recent past.
What are the chances of this CIT deal actually preventing a bankruptcy filing, rather than just delaying it for a few months? At first glance, it would seem that the chances are good: why else would bondholders throw $3 billion of good money after the bad money they’ve already invested? But at second glance it’s not so simple: that $3 billion in new funding not only carries a double-digit interest rate, but is also secured by a whopping $10 billion in assets.
Phil Wahba and Ilaina Jonas report:
Several large investment firms are creating new lending companies that plan to go public to raise billions of dollars to take advantage of the distress in the commercial real estate market, and more are on the horizon.