Bloomberg reports:
Verizon is "selling rights to income stream in return for debt exposure." Mohammed would reel! Jesus would condemn it.
First, where is the money? They can say 49 billion dollars all they want, but there is not a cent of money involved. It is all notional.
The value here is based on what Verizon is worth, and Verizon has licenses to use public utilities to transport electric communications for its customers, who are all on limited contracts going out no more than one year, among all users of electronic media. Can a company be more flimsy? To sell the rights, let alone buy them, is too risky to be acceptable. Can you say Enron? Worldcom?
Next bondholders are superior to owners in case of default. This violates the "skin in the game" necessary for a just economy. Bondholders have incentives contrary to orderly commerce. They say "die" when time would heal a company's problems. Owners get wiped out today by bondholders who prefer to be paid now than await a workout.
The selling of these bonds is a misnomer, because no money changes hands. Credit is traded for bonds. If you read the entire article, there is a whole lotta shifting of other bonds around to make room for this bond. It is all notations on balance sheets, who has credit in their own right, and whose credit is denominated on other's debts. There is no way to accurately account for this, especially since there are no hard assets to link to the debts.
Credit is all fine and good in business. It is why there is never a problem of a shortage or money, since people extend credit when there is no money. But it is one thing to extend credit on a pound of bacon, another on a notional value of the Verizon balance sheet. One is human, person to person, the other is devoid of humanity. It is a lie.
Now bonds work backwards: by borrowing money at low rates, a companies costs are lower, so its profits are higher. (That is not to say more taxes are paid, the company will launder the profits overseas or otherwise spend the money on its owners.)
When Verizon is paying 6% on 50 billion, they pay 3 billion to the pensions in interest. At 4%, they pay $2 billion, saving $1 billion. Kaching!
So who loses? Pensions buy these bonds. At 6%, mom was getting $6,000 per year from her pension. At 4%, she is getting $4000 per year. Ouch!
(Now the deals are far more complex than this, but in essence, this is what happens.)
So what we have in capitalism is usury is protected by law. Verizon can buy a whole lotta help from the state with just a fraction of the billion windfall. Mom can get no help at all, and less so, when her income goes down.
Usury is not forbidden because someone says so, it is forbidden because it does harm. When will Christians and Moslems begin to develop alternatives to a usury-based economy?
Please feel free to share this post with three of your friends.
Verizon Communications Inc. (VZ) sold $49 billion of bonds in eight parts in the biggest company debt offering ever.The reason for doing this follows on the Fed policy to keep usury rates low. Low usury rates mean people on fixed incomes get less resources. The difference goes to Verizon, in a roundabout way.
Verizon is "selling rights to income stream in return for debt exposure." Mohammed would reel! Jesus would condemn it.
First, where is the money? They can say 49 billion dollars all they want, but there is not a cent of money involved. It is all notional.
The value here is based on what Verizon is worth, and Verizon has licenses to use public utilities to transport electric communications for its customers, who are all on limited contracts going out no more than one year, among all users of electronic media. Can a company be more flimsy? To sell the rights, let alone buy them, is too risky to be acceptable. Can you say Enron? Worldcom?
Next bondholders are superior to owners in case of default. This violates the "skin in the game" necessary for a just economy. Bondholders have incentives contrary to orderly commerce. They say "die" when time would heal a company's problems. Owners get wiped out today by bondholders who prefer to be paid now than await a workout.
The selling of these bonds is a misnomer, because no money changes hands. Credit is traded for bonds. If you read the entire article, there is a whole lotta shifting of other bonds around to make room for this bond. It is all notations on balance sheets, who has credit in their own right, and whose credit is denominated on other's debts. There is no way to accurately account for this, especially since there are no hard assets to link to the debts.
Credit is all fine and good in business. It is why there is never a problem of a shortage or money, since people extend credit when there is no money. But it is one thing to extend credit on a pound of bacon, another on a notional value of the Verizon balance sheet. One is human, person to person, the other is devoid of humanity. It is a lie.
Now bonds work backwards: by borrowing money at low rates, a companies costs are lower, so its profits are higher. (That is not to say more taxes are paid, the company will launder the profits overseas or otherwise spend the money on its owners.)
When Verizon is paying 6% on 50 billion, they pay 3 billion to the pensions in interest. At 4%, they pay $2 billion, saving $1 billion. Kaching!
So who loses? Pensions buy these bonds. At 6%, mom was getting $6,000 per year from her pension. At 4%, she is getting $4000 per year. Ouch!
(Now the deals are far more complex than this, but in essence, this is what happens.)
So what we have in capitalism is usury is protected by law. Verizon can buy a whole lotta help from the state with just a fraction of the billion windfall. Mom can get no help at all, and less so, when her income goes down.
Usury is not forbidden because someone says so, it is forbidden because it does harm. When will Christians and Moslems begin to develop alternatives to a usury-based economy?
Please feel free to share this post with three of your friends.
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