A company was founded that used bonds for its financing rather than stocks. It issued bonds for various lengths of time: short term to smooth cash flow, medium term for starting new projects, and long term for capital improvements such as office buildings and factories.
When it began hiring a large number of people, it started a retirement and disability insurance fund for its employees. It paid half of the premiums and collected the other half from the employees. All the premiums purchased short-term bonds of the company. Essentially, the company used the premiums to smooth its cash flow.
This went on for several decades. Some employees never collected because they died before retirement. Others collected for a few decades after retirement. Few complained about the arrangement.
Then the company hired a new CEO. He looked at the retirement fund and decided that instead of paying interest on the bonds of the fund, he could use that money to increase his own salary. He also found a loophole in the decades-old contracts that allowed him to not pay the principle on the bonds. He could apply it to his own salary.
There was a big hue and cry from current retirees about having their retirement checks reduced, but the votes of the bonds were controlled by the company, not the retirees.
Meanwhile,the holders of the higher interest bonds, the big banks and the foreign governments, including China, were assured that the company would meet its regular interest payments and pay the bonds in full on maturity.
