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They work when you hold them to maturity, which can be a short time if you buy that kind of bond.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid (arvid.hallen at gmail.com) on Tue Oct 20th, 2009 at 09:16:42 AM EST
[ Parent ]
Only for very specific kinds of short-term bonds. If the commitment that they cover is similarly short (secured operating credit, basically), then it works. But if the commitment that they cover is long (investment credit), then the debtor needs to be able to roll over his loans when they reach maturity.

And currently there is no firewall between investment credit and operating credit. Making such a firewall would probably go a long way towards making banking boring again. But that will be then, and this is now.

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Oct 20th, 2009 at 10:16:26 AM EST
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