Thursday, March 12, 2009

The Evil Bondholders

We have observed a notable increase, in recent days, of Government (specifically Congressional) rhetoric that is quite anti-bondholder in nature. The call is growing increasingly louder for debt holders to "share the pain". These sorts of proclamations are recklessly foolish, even by Government standards. When statements such as this are made, we are forced to wonder whether our elected officials understand the crucial role that the bond markets play in a market based economy. For instance, we are told that Life Insurers own roughly 18% of all outstanding corporate debt. As we have noted before, the Government seems unaware of the potential Repercussions of it's actions.

First, a "sharing the pain" policy would wreak havoc upon the Life Insurers regulatory capital levels, bringing some to the precipice of collapse.

Second, and most importantly, we believe that an eminent domain like action against bondholders would cause a nearly irreversible "seizing-up" of the market for corporate debt. All of the Government's efforts to restore confidence to the System thus far would be wiped out in one fell swoop.

We are quite sure of it. Sphere: Related Content

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