Posted on 12/11/2012 9:32:57 AM PST by SeekAndFind
Tyler Durden has this nailed:
These three letters - C.A.B. - might just be the Dis-Humor story of the day. NPR reports that more than 200 schools across California are coming to the shocking realization that the upfront cash they needed so badly came at quite a price. These 'Capital Appreciation Bonds' are unlike normal bonds (requiring regular coupon payments and principal repayment); instead they provide the 'lent' money upfront and defer all interest and repayment to some magical faery land time in the future (by which time the interest accrued has grown exponentially as the interest accrues on the rising 'principal plus previously accrued interest').
Brilliant - as the Guinness chaps might say. So California schools are now undertaking PayDay or loan-shark style loans defending the idiocy of super-short-term thinking with such statements as "Why would you leave $25 million on the table?" referring to the upfront cash that one Treasurer was able to get his hands on - with clearly no comprehension of the financial instrument's massive convexity. California State Treasurer Bill Lockyer said "It's the school district equivalent of a payday loan or a balloon payment that you might obligate yourself for, so you don't pay for, maybe, 20 years - and suddenly you have a spike... It's so irresponsible."
There has to be some lesson in here - some philosophical reflection on our society's complete and utter inability to see beyond the next cashflow need... Simply mind-blowing...
According to NPR, one California school district, "a $2.5 million bond will cost the district a whopping $34 million to repay."
(Excerpt) Read more at americanthinker.com ...
They will just default. What’s the problem?
RE: They will just default. What’s the problem?
I’d really like to believe that California is not my problem as I live in another state, but hey.... we have Obama as president and California is a huge blue state.
I think I know what that means to my tax dollars.
Who bought the bonds?? These articles need to follow the money. This may be a Dem scheme to enrich certain people.
Ya think!?
This is what Marxist's do after they have emptied the treasury, they borrow more money in other peoples name, and then when the truth comes out...
...Kill them.
Sound like nothing more esoteric than a zero-coupon bond to me.
These are not at all unusual. However, morons sometime have difficulty understanding that when they borrow money, the lender expects to be repaid with interest and has a legal claim for satisfaction of this expectation.
It appears quite likely that much of the press and the government is run by morons.
40 year bonds that cost 10-16 times the money.
I guess I should’ve added some rhetorical facetious and sarc symbols after my statement. I was just giving what was probably behind the thinking of the financial geniuses who signed off on this.
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