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Chapter 17: Guaranteed Securities

This covers guarantees of two different types: First, given by a corporation engaged in sale of mortgages; Second, guaranty given by an independent surety company which assumes the contingent liability in return for a fee.

Graham notes that these guarantees will have the best chance of success if

a)    The mortgage loads are conservatively made in the first instance.

b)    The guaranty or surety company is large, well managed, independent of the agency selling the mortgages, and has a diversification of business in fields other than real estate.

c)    Economic conditions are not undergoing fluctuations of abnormal intensity.

All obligations equivalent to bond interest should be included with a company’s interest charges when calculating the coverage for its bond issues.

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