The past, present and future of junk bonds

Mon, 05 May 2008 06:59:58 -0400

There's been a good deal of debate about the role of junk bonds in the ongoing credit crunch. Martin Lipton says the junk bond is the fount of it all. A Financial Times columnist weighs in, seeming to agree more with Lipton. One of his points is that we still do not know whether the high-yield market is in a for a really nasty spell. What if a recession really kicks in? What if companies really start to default (unthinkable a few years ago)? For the moment, there seems to be a mild resurgence in the market. First-quarter volume ticked up a bit. But hey, as the column points out, at least the ratings of high-yield issues reflect the reality of the risk. Then again, there may be some bargains to be had in distressed credit beyond leveraged loans. We'll see.

For more:
- here's the Financial Time column

Battle of legends: Milken vs. Lipton

Tue, 29 Apr 2008 06:59:54 -0400

Martin Lipton, the legendary lawyer, says the financial crisis stems from the invention of the junk bond so many years ago. As the New York Times notes, Michael Milken begs to differ. He tells the paper that junk bonds--as well as all the CDOs that invested in them--have precious little in common with subprime mortgages. And he has a point; one could argue that junk bonds in and of themselves are neither good, nor bad. It's what you do with them. Same goes for securitization. In both cases, there can be excesses. In general, Milken has a lot to say about the mess, including a bit about how more regulation will not help. I find it interesting that he has made himself a revered, somewhat nostalgic feature. Even Rudy Giuliani, the man who put him in jail, agrees.

For more:
- here's the Times article