some good news: bondholders' free ride may be coming to an end.

[girl gone mad]

From http://www.ritholtz.com/blog/2009/03/haircuts-for-bond-holders/">The Big Picture

We have been lambasting the AIG bailout as a backdoor rescue for Goldman and others. It is unconscionable that the taxpayer must make good the speculative, off-exchange bets made by hedge funds.

There is another group that has also been (unfairly) made whole: The Bond Holders.They lent momey to poorly run, insolvent institutions, and somehow expect to see a return of a 100% of their capital.That makes no sense whatsoever.

In bailout deals such as Bear Stearns, Citgroup and Bank of America, they garnered a 100% return of invested capital (i.e., lonas). I suspect that is fast coming to an end. In the event of any pre-packaged receivership workout (aka Nationalization), the bond holders are going to have to take a big hit.

Bloomberg:

“Citigroup Inc. and Bank of America Corp.’s bond prices are sliding on concern that owners of debt issued by U.S. financial firms will be forced to swallow losses if the industry needs another bailout.

U.S. bank debt has lost 7.8 percent and yields have jumped to record levels compared with benchmark rates in the past month, even after taxpayers committed more than $11.6 trillion to prop up financial firms. With shareholders almost wiped out at banks like Citigroup and lawmakers resisting more rescues, holders may be asked to swap bonds for new debt that offers reduced interest rates or lower face values, analysts said.

Debt investors are an attractive target because of the size of their holdings — more than $1 trillion just at the four largest U.S. banks — and because they’ve emerged almost unscathed so far.”

I thought this quote was interesting also:

Since any reduction in debt at a bank helps boost capital ratios, members of Congress including U.S. Representative Brad Sherman, a California Democrat, say it’s time for bondholders to share the pain.

“These banks can go into receivership, shed their shareholders, shed or reduce the amount they owe to their bondholders and come back out much stronger institutions,” said Sherman, who sits on the House Financial Services Committee, in a statement to Bloomberg News. More U.S. capital might be offered as part of the package, he said.

I appears that Congress is starting to get it . . .

[Po_d Mainiac]

1. Screw the spiffy haircut...get out the straight edge razor.

At the same time you're lopping off their golden locks, hold their feet to the fire.

Sounds like a fair choice...share the pain, or take your chances with a bankruptcy hearing

[notesdev]

2. Sherman is the man!

If you haven't seen the video of this guy exposing the bailouts on the House floor, look them up now. He is the epitome of what we need at this point in time - someone who is willing to tell the truth, say it publicly, and keep saying it.