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It's not turning public debt into something good: it's turning an extra-volume of public debt, plus the signature of the entity issuing the bonds, into something good. Overcollateralisation, plus recourse over someone else's paid-up equity: it does make a difference.

Wind power
by Jerome a Paris (etg@eurotrib.com) on Sun Mar 6th, 2011 at 05:21:02 AM EST
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Why is buying public bonds inflationary and in need of sterilization, while buying covered bonds isn't?

So, in what may be my last act of "advising", I'll advise you to cut the jargon. -- My old PhD advisor, to me, 26/2/11
by Carrie (migeru at eurotrib dot com) on Sun Mar 6th, 2011 at 05:26:55 AM EST
[ Parent ]
If, as with Portugal just now, a country is in a situation where it seems unlikely that it will have the tax base to pay off its obligations, covered bonds might not be such a good solution. Why put public assets such as hydro power, wind power, rail, etc. up as collateral for covered bonds? That would seem a prelude to loss of public control of these assets in a default. It would seem more in the (Portuguese) public interest to leave the debt backed by "the full faith and credit" of the nation and let the debtors come after the whole angry nation. At least the public would retain the benefits of public ownership of power generation, rail, etc.  

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Mar 6th, 2011 at 09:23:07 AM EST
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