Woohoo, crazy theories likely based on misunderstandings. Care to correct me where needed?
1) As Fed target rates decrease, prime lending rates decrease, correct?
2) Long/Short treasury rates tend to rise and fall in near-synchronization with the prime rate, right?
3) Huge and highly liquid corporations (usually insurance and financial institutions? [well, not this time ]) can issue ridiculous amounts of bonds (staying within the "investment grade" spectrum) for ~4% annually when Fed rates are around present levels, correct?
4) What's to prevent a corporation from just riding the cycles; issuing huge amounts of bonds when the fed target rate is ~0-1% and then selling in times of a boom when they can buy back the bonds at ~50-60% of the value (as their bond rate will be ~4%, while most are at 10-20%)? Could it be in the best interest of the corporation to post poor numbers, depress the bond prices further (wouldn't the loss from the interest rate be depressing the price as well if the loaned money0 weren't put to work?), have the execs snap up the stock at ridiculously low prices, sell the bond, and have a 40% gain show up one quarter boosting the stock price incredibly and making stockholders that much richer? Would analysts/investors notice in time?
5) Is this (#4) a contributing factor to the boom-and-bust economy or just a wild theoretical that doesn't (or can't?) happen in the United States?
6) What's the point of overnight bank lending in the era of electronic money?
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