Raghu writes: >> Subsequent to the securitization, will Sears continue to advertise and >> promote these trademarks as they did before? Will they refrain from >> creating or promoting new or competing brands for future products? Do >> Sears or their IB partners have the ability to obtain 'AAA' ratings >> from Moody's and S&P for their securities? Will S&P and Moody's be >> able to devote enough resources to continually evaluate the value of >> the trademarks over time in an accurate way? We will only find out all >> of these well after Sears has monetized its trademarks. >> >> The reason you think I am confused is that you are talking about an >> ideal capital market, whereas I am concerned mainly with the >> non-idealities. Such non-idealities would include such things as tax >> laws, agency problems, information asymmetries and moral hazards and >> they would distort the normal functioning of the capital markets that >> you describe. >> >> The main disagreement I have with your ideas is that I think these >> non-idealities are all pervasive in the real-world capital markets >> whereas you think that the markets work as expected from theory for >> the most part with only minor distortions.
No, I am not talking about an ideal capital market -- I am talking about the actual existing messy chaotic capital market. Everything you identify as the problem of taking non-income generating intellectual property as collateral is not a secret -- it is precisely why the Sears story is news. It is very possible that the market is going to agree with you that the added benefit of such intellectual property as collateral is so minimal (because of the risks you identify and others) that the market is going to price the asset-backed securities as essentially unsecured. However, if the market disagrees with you and treats the collateral as sufficiently valuable to lower the interest rate compared to an unsecured loan, it will be with eyes wide open and not because Sears and the bond salesmen pulled a fast one. The market may turn out to be wrong, but the fact that the market may be wrong does not mean that it was snookered in the sense you are assuming. David Shemano
