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Investors were so anxious for yield that they barely distinguished between good and bad credits.
The principle was absolutely right: unless default is a possibility, bond investors have no reason to distinguish between good and bad credits.
"Every program that the government has announced was focused on bad credits, but they were trying to fix a hole that is too big," Mr. Patrick said.
The $700 million in bad credits that the banks have agreed to absorb are insider loans, money that the banks lent to board members or to companies controlled by friends.
The hope, he said, is that in the future "there would be better pricing in the bond market where the good credit is priced higher and the bad credits are priced lower".
Similar(51)
"No credit, bad credit, bankruptcy?
Could bad credit be an advantage?
— of bad credit and tenant noncompliance.
Security cameras will follow us like a bad credit rating.
Bad credit can make it more expensive to rent.
But their lender said they were a bad credit risk.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com