howl
By Nicholas von Hoffman
May 15, 2008
These days, even people who pay attention only to gallery openings and baseball scores are suddenly paying attention to what's happening on Wall Street. Investment bankers and hedge fund managers are crafting financial instruments the likes of which have never been seen by the industry, the consumer or the Federal Reserve. As mortgages melt down, the market gyrates, and the regulators make their pronouncements, here is a short list of some of the business terms and their meanings that are driving our wild financial ride.
Additional Capital: A financial lifesaver for banks and investment houses swamped by losses and the threat of bankruptcy. The additional capital raised to cover the emergency is obtained by printing and selling more stock, thus lessening the value of the stock already in existence.
Raising money under these circumstances is very expensive and sometimes involves a guarantee that the buyers of the new stock will receive some kind of dividend before anybody else gets paid--an additional sock in the nose to the current stockholders. The need to raise additional capital is not always due to the stupidity and incompetence of the people running the company. Sometimes it's for such profitable purposes as buying new machinery or expanding the factory (back in the days when we had factories).
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