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If you buy a bond and it turns out to be worth less than you paid for it, then you get equity after bankruptcy resolution.

If you buy public debt of a sub-sovereign entity you're counting on the sovereign to make you whole. Too bad the Eurozone has no sovereign but the ECB and the ECB making German creditors whole gives Germans stomach ache.

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa

by Migeru (migeru at eurotrib dot com) on Tue Aug 28th, 2012 at 11:19:43 AM EST
[ Parent ]
But there's an important difference:

If you buy a bond and you have to restructure it into equity, society incurs a very real cost - at a minimum the cost of lawyer-hours during the bankruptcy proceeding. If you buy a share of common stock on the exchange and it drops to half the price, there is no particularly compelling reason for society to give a shit.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Aug 28th, 2012 at 11:29:45 AM EST
[ Parent ]


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