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In a basic LBO, a company’s managers and a group of outside investors borrow money to acquire a company and take it private; the company’s own assets are used as collateral for the loans, which are repaid from future earnings or asset sales. (Interest payments, significantly, are tax deductible.)
In LBOs, the target company suffered the pain and carried the risk, having to sell assets and cut costs to pay off the debt.
Dr. Johnson’s observation that hanging wonderfully concentrates the mind.
Most cost cutting and asset sales that followed LBOs weren’t designed to improve company performance; they were just steps to pay for the LBOs and were often unnecessary without them.
futures-related trading reintroduced leverage into the market that the government thought it had stamped out with stiffer margin requirements in the 1930s.
From 1984 to 1987, stock prices had risen without a 10-percent correction.
Following exactly the 1929 pattern, the bond market slumped in the spring of 1987, and the Federal Reserve raised...
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Morgan Stanley, fearing clients would miss the next leg of the bull market, exhorted them to be 100-per...
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“For days everyone just kept passing the bear market around the time clock,”
That was the big script difference from 1929—the absence of a bankers’ rescue.
The Fed bought dollars and engineered a sharp drop in interest rates.
The question of whether program trading increases volatility is complex and unresolved.
The reductio ad absurdum was the $25 billion RJR Nabisco deal, the largest LBO ever.
Like most LBOs, it was executed almost entirely with borrowed money. In return, RJR Nabisco was burdened with over $20 billion in debt. Before it sold a cigarette or a biscuit each year, it was already in the hole for $3 billion in interest payments.
the company had announced plans to fire 1,640 workers as a way to save money to service the oppressive debt burden.
Rudolph Giuliani said, “You would think there would have been better controls, better procedures.
For commercial banks, exasperation over Glass-Steagall mounted as everything from car loans to mortgages was packaged as securities and placed beyond their reach.
The 1929 crash had led straight to Glass-Steagall.
Glass-Steagall, which had tried to guarantee the stability of deposit banks.
Greenspan was the tutelary spirit behind a partial Glass-Steagall repeal.
First budgeted at $530 million, the cost overruns at 60 Wall pushed the price up to $830 million.
