Business Debt Is Risky To Borrowers, Not The Economy

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 · NEW YORK (AP) – Homeowners appear to have learned the lesson of the Great Recession about not taking on too much debt. There is some concern that Corporate America didn’t get the message. For much of the past decade, companies have borrowed at super-low interest rates and used the money to buy back stock, acquire other businesses and refinance old debt.

A) if the borrower has the incentive to behave in the way that the lender expects and desires, since doing otherwise jeopardizes the borrower’s net worth in the business. B) if the borrower’s net worth is sufficiently low so that the lender’s risk of moral hazard is significantly reduced. C) if the debt contract is treated like an equity.

Federal Reserve Chairman Jerome Powell on Monday evening made the case that business borrowing doesn’t represent the threat to the U.S. economy that subprime mortgages did a decade ago.

There are huge downsides to large corporate debt, but in reality US companies are not nearly in as much danger as people think. High corporate debt is a risk well worth watching. But given who owns it.

 · The study deems lenders’ exposure to the retail and industrial property sectors as particularly risky in the event of an economic downturn, as well as.

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Despite the fact that large banks may be pulling back, the summer 2015 issue of Subprime Auto Finance News suggests that auto dealers are encouraging, not shying away from, subprime lending.67 History shows that the accumulation of excess private debt when consumer and business borrowers are already burdened leads to disastrous results.68.

[Boniface Okendo/Standard] If you are a risky borrower, you could soon be forced to pay higher interest on loans if a new proposal by an MP is passed into law.

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 · But reverse mortgages are tricky. The loans rapidly deplete the home’s equity. If the borrower doesn’t maintain the property, or is remiss in paying homeowners insurance or property taxes, the deal is off and the loan goes into default. The borrower can then lose their home to foreclosure.

Answer: B 18) Adverse selection is a problem associated with equity and debt contracts arising from A) the lender’s relative lack of information about the borrower’s potential returns and risks of his investment activities. B) the lender’s inability to legally require sufficient collateral to cover a 100 percent loss if the borrower defaults.