1 If you're still wondering about the causes of the slump in the junk-bond market, consider the case of Columbia Savings & Loan.
2 The California thrift has just announced a $226 million third-quarter loss.
3 How did this happen?
4 Well, when Congress in its recent S&L bailout mandated that the thrifts sell off all their junk-bond holdings by 1994, it not only artificially increased the supply of these bonds in the market but also eliminated one of the few profitable investments thrifts have made.
5 But there is a grimly ironic twist to the Columbia loss.
6 As followers of the debate over a capital-gains tax cut know, there is much talk in Congress and indeed all over Washington about the need to 'encourage' long-term investment and discourage the financial sector's presumed obsession with the short term.
7 Now, we regard this as a largely phony issue, but the 'long term' is nonetheless a big salon topic all around the Beltway.
8 It turns out that Columbia had this huge loss in large part because the new congressionally mandated rules forced it to adjust the book value of its soon-to-be-sold junk bonds to the lower of either their cost or market value.
9 They could no longer be classified as what Columbia regarded them, namely long-term investments.
10 Congress's ham-handed treatment of the existing structure of junk-bond holdings reminds us of a story in the Journal earlier this year about the Baby Bell companies' desire to have the court-ordered bans lifted on offering information services.
11 The issue of seeking relief from Congress was raised to Delbert Staley, the chairman of Nynex.
12 Mr. Staley replied:
13 'Legislation tends to be compromised.
14 I believe we have to take a shot at getting as much done as we can through the court, through Justice and through state and federal regulatory agencies.
15 I see Congress as a last resort.' Healthy thrifts such as Columbia or the junk-bond market itself should have been so lucky.
16 The reality of life in modern America is that if you want to wreck something that works, let it fall into the hands of Congress.

Well , when Congress in its recent S & L bailout mandated that the thrifts sell off all their junk - bond holdings by 1994 , it not only artificially increased the supply of these bonds in the market but also eliminated one of the few profitable investments thrifts have made .
few profitable investments thrifts have made
Why were junk bonds one of the only areas thrift banks could profit in?