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Originally Posted by Edward64
I'm sure everyone on this board will agree that your mind and my mind don't think the same way.
I guess there technically could be "interest free" capital but I'm pretty sure there is some "premium/obligation" somewhere the company will have to pay. So you are going to have to provide evidence (link to article and highlight relevant passages) to your claim that this is "interest free capital" and let's see.
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I posted what the Fed is doing which describes precisely what they are doing and why. You can access the Fed balance sheet and watch as the yields drop precipitously as the Fed pumps money into the corporate bond market.
To put it as simply as I can, when the Fed purchases corporate debt, it allows more debt to be offered. It also lowers the yield. So all these companies that stupidly took on debt so they could buyback stocks over the years got a massive bailout because now they could get more debt at cheaper rates.
For example, before the Fed stepped in, Carnival Cruise could only get a loan at 15%. This is a terribly run company that was massively in debt and that's what the market rate should be. But now they were able to get loans at 11.5% and 5.75% because loans are cheaper now that the Fed is backstopping everything. The Fed just saved them over $300 million.
On top of that, this mean they didn't have to sell as big a portion of the company to the Saudis. That was estimated to be $1.25 billion but instead now only needed to be $500 million. A much smaller stake which is another $750 million subsidy.
What this has led to is the company seeing it's market cap jump from $9 billion to $12.5 billion in a few short weeks. A bailout of $3.5 billion by the Feds for a company that isn't even incorporated in the United States. Mind you that this is a company that is not operating at all right now that just saw its value jump by $3.5 billion. Impressive stuff.
You can read up about it here if you'd like.
https://mattstoller.substack.com/p/t...ils-out-boeing
As for interest-free capital, the Fed has gotten the rates down to minuscule amounts. AAA rates at like 1.71%. When you factor in inflation, the real interest rate is likely going to be negative over the course of the debt. So there is a decent chance that they are actually borrowing at a negative rate when all is said and done. That's insane for companies who were poorly run like Boeing.
Now you and I have no access to this capital no matter how great our credit is. The Fed is not backing our shit. This is a bailout, subsidy, whatever you want to call it for the wealthiest people on the planet. It is why this is happening as we reach record unemployment and our GDP contracts.
https://www.cnbc.com/2020/05/21/amer...-pandemic.html
Now you can cheer this on as it appears you want to. Yay billionaires! But there is no denying what they are doing. I've posted links to the Fed and you can Google search all this stuff related to corporate bonds and purchasing of ETFs. I'm not going to bust out a HS Econ book for the rest.