the corner office

a blog, by Colin Pretorius

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Bonds

A bond is an IOU. Quite literally. I remember doing a vac job at a South African bank when I was an accounting student, and we did a 'stock count' of the bank's bond holdings. This amounted to a bunch of us sitting in a room with a big box, and inside the box were prettily-printed certificates from large organisations and governments which in many more words basically said 'pull in on the 25th June 2017 with this piece of paper and we'll give you Eleventy Billion Rand', and we ticked them off against lists to make sure they were all there.

And there you sit, holding a piece of paper which is worth more than you'll earn in your entire life.

Then when we were done the lady who looked after the bonds took the box back and stuck it back in her bottom drawer.

I fib a little, but I remember us being quite surprised at how relaxed they were about security. Which is understandable, not just any old fool is going to rock up at some government building and try to redeem a certificate with a serial number that's worth millions. 'Never mind how I got it. I'd like 'em in 20s, please.' Just doesn't happen.

Anyhow, that's what bonds are. And all the stuff that's going down now is because suddenly people aren't so sure that those pretty pieces of paper are going to be redeemed one day, in 20s, or anything else.

That's the eurozone crisis, and the US credit downgrade, in a nutshell.

{2011.08.08 - 23:22}

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