So, if there is a large amount of money that is searching for risky investments to the extent that investors are willing to finance an obviously failing business, how come more of it doesn't end up in risky ventures that might actually go somewhere?
Is the problem a lack of information, the lack of better investments, or that investors don't care about their money?
I think what the author may be getting at, and I hate using this term, is moral hazard.
Those investing the in debt (most likely with someone else's money, mind you) are yield chasing. They probably aren't betting the farm on this company, just a small % of whatever money they manage.
If it works out and the company doesn't go under, great! They just make 8% in a low-yield environment, they look smart, they get bigger bonuses! If the company goes under, that sucks. But, they can rationalize it to investors as 'this stuff happens' and becomes a write-off. Imagine this is a hedge fund, the managers probably didn't lose their money, they lost their investors' money.
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So, if there is a large amount of money that is searching for risky investments to the extent that investors are willing to finance an obviously failing business, how come more of it doesn't end up in risky ventures that might actually go somewhere?
Is the problem a lack of information, the lack of better investments, or that investors don't care about their money?
I think what the author may be getting at, and I hate using this term, is moral hazard.
Those investing the in debt (most likely with someone else's money, mind you) are yield chasing. They probably aren't betting the farm on this company, just a small % of whatever money they manage.
If it works out and the company doesn't go under, great! They just make 8% in a low-yield environment, they look smart, they get bigger bonuses! If the company goes under, that sucks. But, they can rationalize it to investors as 'this stuff happens' and becomes a write-off. Imagine this is a hedge fund, the managers probably didn't lose their money, they lost their investors' money.