The latest XKCD illustrates how mind-numbingly huge the financial sector is. All those trillions of derivatives on the market dwarfing the entire global GDP, the world's total liquid assets, all of Earth's known oil reserves -- you name it.
Stop Blaming Wall Street.
It isn't the reason our economy is in shambles.
The answer is "Because we couldn't function as a society, much less a modern one, without out it." Just like the only way we moved past mob lynchings and fiat legislation was by the introduction of a robust legal sector, the only way we moved past subsistence farming and centuries with multiple famines was by the introduction of a robust financial sector. If nothing else, the financial sector exists to help individuals and businesses deal with and allocate risk.
If Ford really needs to issue $500 million next week, and not doing so would cause some serious issues, (bankruptcy, missed production, missed tax payment, etc.) White Shoe will guarantee Ford gets it's $500 million. White Shoe essentially buys the entire issue ($500 million) and incurs the risk of not being able to sell it off to its customers. In short, Ford is assured it will have $500 million in the bank on a certain day, White Shoe is not.
-Determining the cheapest price of the bond based on market demand. ie
What coupon rate is the market demanding for a bond that matures in November 2017?
What if the maturity is 2016 or 2018?
What if the bonds are callable?
What if the bonds are putable?
What price do similarly rated bonds trade at?
Instead Ford would need to actively market its bonds--e.g., go on the road to visit investors and convince them of the merits of Ford's bonds. At some point it just becomes more efficient to outsource this work.
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