Friday, October 23, 2009

Should Bondholders be bailed out ?

When shareholders are not bailed out, there are 2 reasons stated:

1. They might venture into excessive speculation if they know that the govt. would anyway bail them out.

2. Shareholders will have lesser incentive to keep a check on the companies jumping into risky projects.

But then again the same should apply for bondholders too, even they are informed of the level of risks that the companies are in. When thats the case, why are bondholders of AIG, Bank of America and Fannie Mae bailed out ?

Should'nt they be treated on par with the shareholders ? .. Read on ..

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