Should Bondholders be Bailed Out?
The general rule of thumb that has emerged from the past year’s turmoil seems to be that when a financial institution is deemed “too big to fail,” governments should and will intervene if it gets into trouble. But a better approach may be to protect only some creditors of a bailed-out institution, and never their bondholders.
https://prosyn.org/tqLNwxE
CAMBRIDGE – A year after the United States government allowed the investment bank Lehman Brothers to fail but then bailed out AIG, and after governments around the world bailed out many other banks, key question remains: when and how should authorities rescue financial institutions?