Debt Sold to Widows

I read an article a couple days ago about Incapital which underwrote millions of bond offerings for: GMAC, CIT, Lehman and many other companies. Incapital sells Internotes, Incapital says InterNotes, managed by a joint venture with Banc of America Securities, are sold through 600 broker-dealers, including Fidelity Investments and Edward Jones & Co. Incapital CEO, Tom Ricketts said, “We’ve always stuck to investment-grade and we’ve always put our faith that that was a good line in the sand,” Ricketts said. “To the extent that we have investors that may not get their money back, that doesn’t make me happy. CIT is in distress. We would never have put something up on our screens if we had a thought that they would ever end up in a situation like this.” Earlier in the year there was a great deal of criticism about how credit rating agencies handled subprime debt and CDOs. Lehman Brothers, CIT and AIG were investment grade issues until late 2009, consequently Incapital assumed they were providing retail customers safe liquid securities. however, the bigger issues is even thought criticism for the credit rating agencies is well deserved what alternative is there. The reason there are financial intermediaries is because of the large asymmetry of information and knowledge between retail investors and institutional players. On August 24, 2007 CIT was trading at $37.85 and $61.00 a month earlier. As we speak, there is no other viable alternative, but hopefully these companies can be more forward looking and more introspective about off balance sheet risk and innovative exposure stealth.