Matt Yglesias has a piece today about how the current state of the bond market permits profitable leveraged buyouts. The interest rates on junk bonds have now dipped below the rate of return for the S&P 500 as a whole. So, if someone was able to put it together, they could raise a bunch of money issuing junk bonds and buy up entire companies with the raised money. Despite having to pay interest on the junk bonds, such a move would still be profitable.
But you know what actor could do this even more profitably? The United States federal government. While the interest rate on junk bonds appears to be around 6 percent (judging from the graph), the interest rates on Treasuries are much lower. The 1 year rate is 0.15 percent, the 5 year rate is 0.83 percent, and the 10 year rate is 1.99 percent. The federal government could use its rock bottom borrowing rates to buy up companies in the S&P 500 or even just dump money into an S&P index fund. Since the expected rate of return of such investments is considerably higher than the interest rates on Treasuries, this would be a profitable move.
I’ve mentioned this before, but it is worth highlighting given the recent uptick in discussion of socializing finance caused by Seth Ackerman’s Jacobin piece on the subject. In addition to providing a new source of revenue for the federal government (one wrestled away from rentiers), socializing finance in this way — even if partially — may also reduce the power of corporations to defeat reforms and programs that they currently stand strongly against, e.g. basic incomes, public goods, and transfers.