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The Financial Crisis in Perspective (Collection) by Mark Zandi, Satyajit Das, John Authers

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Chapter 7. Junk Bonds

“Greed is alright, by the way. I want you to know that. I think greed is healthy. You can be greedy and still feel good about yourself.”

Ivan Boesky, speaking at the University of California, Berkeley, May 18, 1986

Junk bonds and securitized mortgages took from bankers the businesses of lending to risky companies and mortgage lending, and gave them to the markets. This drove a wedge between those who bear the risk of a loan and those who decide to make the loan, and encourages risk-taking. As a result, mortgage rates moved in line with other markets, cresting and crashing in unison with them.

The most widely recognized investor of the 1980s was not a businessman at all, but the actor Michael Douglas. As the fictional arbitrageur ...

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