I'm going to draw an analogy with mortgages. Superficially someone who wants to own a home has the option of taking out a mortgage or not. However the 'no debt' option means you must find a home in a market where nobody else has access to a lender. The choices in any competitive market are basically to take on debt or bow out and rent. In a competitive market, the person who lends the money tips the scales and decides who gets resources - in this case a house.
So back to corporate debt; yes on the one hand investors choose to take on the debt. On the other hand, if they aren't willing to take on debt then the rational choice is more to bow out of the market than to put in long hours and compete. The alternative to debt is competitors that simply have more resources without having to work particularly hard for them. Much like taxi companies v. Uber - how do you compete with a company that from a profit perspective pays passengers to ride with them? Why do you compete? The short term answers to those questions are challenging. Only people who are willing to take on excessive debt for some other reason will be left after a few years. Or companies with a tolerance for pain.
I wouldn't have a problem with this dynamic except for the fact that the banks clearly have government backing and are only surviving because of it - if investors had control and had to bear the consequences of the bankers action there would have been profound changes after the last financial crisis instead of Quantitative Easing and a return to business as usual. There is substantial evidence that the people who control the money are very bad at what they do. They should be replaced with people who are, at a minimum, are an unknown quantity rather than legitimately incompetent.
I know technically all this debt is probably being purchased by retirement funds. But the major contributing reason the retirement funds are willing to buy such low quality trash is because the banks (and central banks) have been pumping money into the system to compete for anything that could possibly return a yield. Competition is usually a good thing, but competition by people who can literally print money is not helpful.
It's not a material amount vs overall outstanding market and a majority of the holdings are in higher quality, short-dated bonds that will likely be paid at maturity long before any credit stress is seen. Corporate treasurers are not in the risk taking business. They are squeezing out incremental yield from cash on hand.
The people that control the money is not bad what at what they do. It’s just that the incentives are wrong when the system is rigged so that either they win, or we lose.
> However the 'no debt' option means you must find a home in a market where nobody else has access to a lender.
Or you can have a lot more money to start with than the average home buyer; you only need equal access to financing if you also have equal access to cash.
No kidding. Pretty much anyone selling a property will pick a cash offer over a financed one, if nothing else to eliminate a long wait period for underwriting.
I think he means that given 2 people with the same amount of wealth, the one that borrows money can either buy a nicer house than you, or outbid you if you want the same house.
