Chutzpah

A very simplified analysis of the various bail outs that have happened around the world is that the status of the lender is important, not the status of the borrower.

So in the USA, they bailed out their banks (in particular Fannie & Freddie) because the bonds are held by PR China and the USA is dependent on PR China; Greece was bailed out by Euro-zone taxpayers because a lot of Greek bonds are held by French or German banks (which in turn are largely state-owned); and the ECB forced Ireland to bail out its own banks (which are now also largely state-owned) for the same reason (and the Euro-zone countries in turn will be bailing out the ECB when the time comes).

In other words, the Euro-zone taxpayers weren't really bailing out Greece, they were bailing out French and German banks which own a lot of Greek bonds. And so on. It's quite possible that the UK government bailed out UK banks because a lot of their bonds are owned by Sacred Cows like pension funds or something (I'd have to look into that).

The key to debt-for-equity swaps is to expect bondholders to take some of the losses on the chin (in nominal terms - in terms of market values, such swaps have little impact), as I have been pointing this out for three years.

So my flabber was well and truly gasted when I read this:

GERMAN Chancellor Angela Merkel's coalition backs proposals for a two-step crisis mechanism to make bondholders pay for any future euro-area crisis, the parliamentary finance spokesman for her party said yesterday...

It's a bit bloody late for that! Or is she now just pulling up the drawbridge, having got her own banks into the safety zone?