Fifth, debt burdens that cannot be eased by growth, savings, or inflation must be rendered sustainable through orderly debt restructuring, debt reduction, and conversion of debt into equity.

Forcing a debt for equity swap or debt forgiveness would be no greater a violation of private property rights than a massive bailout.

Unsustainable private debt problems must be resolved by defaults, debt reductions, and conversion of debt into equity.

Many countries tax systems hugely favor debt over equity.

The typical bank is capitalized with equity, long term debt, short term debt, and deposits.

As during the Great Depression and in many debt restructurings, it makes sense in the current contingency to mandate partial debt forgiveness or a debt for equity swap in the financial sector.

Debt equity swaps rescue the banks without rescuing their shareholders.

As a result, commercial providers of debt or equity cannot get the high returns and quick exits that they seek.

Higher equity capital requirements, for example, require banks to fund themselves with relatively more equity and relatively less debt.

But, while debt forgiveness benefits holders of both equity and debt, debt holders don t voluntarily agree to it for two reasons.

Under Chapter 11, companies with a solid underlying business generally swap debt for equity. Old equity holders are wiped out and old debt claims are transformed into equity claims in the new entity which continues operating with a new capital structure.

This has led to heightened volatility in equity, money, and debt markets.

Higher and pro cyclical equity capital requirements on banks, combined with a requirement to raise contingent long term debt debt that converts into equity in a crisis is a better way forward.

Fifth, debt burdens that cannot be eased by growth, savings, or inflation must be rendered sustainable through orderly debt restructuring, debt reduction, and conversion of debt into equity. This needs to be carried out for insolvent governments, households, and financial institutions alike.

Where realistic debt restructuring scenarios indicate capital shortfalls, across the board conversion of bank debt into equity will be necessary.

Debt equity swaps would be a much better way to recapitalize the banks.

Indeed, if, as some believe, only a fraction of the banks equity is at risk, the potential debt equity swaps would be minuscule.

Banks have less debt relative to their equity levels than they had in 2007.

Following that, the restructured bank can be recapitalized by raising new debt and equity.

Seizing on a 93 million debt that Armenia owed to Russia, the Putin administration demanded payment in either cash or equity in Armenia s major industries.

Banks often oppose higher equity asset ratios, because equity capital is more expensive than debt capital. But this is precisely because of the lemon effect.

After all, more debt (relative to equity) means a higher payoff when things go well.

Based on those values, contracts with existing equity and debt holders should then be restructured.

At the same time, China s corporate sector relies excessively on debt financing, rather than equity.

UNCTAD should continue its work in the area of debt, including the study of the application of debt for equity swaps for development.

Use more cheap debt, and equity becomes riskier and costlier, keeping overall financing costs the same.

Finally, increasing financial leverage means that the firm uses more debt financing relative to equity financing.

A significant number of banks operated at very high levels of leverage prior to the recent crisis, with debt equity ratios of 30 1 (or more) in some cases, and with much of the debt very short term.

It was the equivalent of a Chapter 11 restructuring of American corporate debt, in which debt is swapped for equity, with bondholders becoming new shareholders.

As during the Great Depression and in many debt restructurings, it makes sense in the current contingency to mandate partial debt forgiveness or a debt for equity swap in the financial sector. It is a well tested strategy, and it leaves taxpayers out of the picture.

Debt equity swaps have been used successfully in many cases, and they follow from normal bankruptcy procedures.

Both the equity and the debt issued by well capitalized banks would be safer and therefore cheaper.

Concessions that the developed countries could make to Africa included meeting their official development assistance (ODA) commitments, debt cancellation and the conversion of debt into equity investments.

Central banks and finance ministries are also complicit, since debt gets bailed out far more aggressively than equity does.

Converting some portion of debt to equity under predetermined solvency threatening conditions would provide an extra layer of protection.

Do we need financial institutions to be so highly leveraged (that is, carrying so much debt relative to equity)?

Government debt must be restructured. Bank debts have to be converted into equity and, where banks are insolvent, written off.

These are highly leveraged businesses, typically funding their balance sheets with no more than 5 equity (and thus 95 debt).

Forcing a debt for equity swap or debt forgiveness would be no greater a violation of private property rights than a massive bailout. But, for the major players in the financial sector, it is much more appealing to be bailed out by the taxpayers.

Second, with banks losing substantial amounts of equity capital estimates now reach 300 billion and more the need to maintain minimum equity debt ratios will force them to curtail business lending, hindering investment demand.

With a worsening recession, many LBOs that were loaded with too much debt and not enough equity will fail as firms with lower profits or higher losses become unable to service their loans.

Regulation 19 Equity interest, joint venture or production sharing participation

Thus, a debt equity swap of less than 7.5 of the creditors investment would be enough to compensate for the banks losses.

But there is an alternative that essentially means playing by the rules of a normal market economy a debt for equity swap.

(b) offer an equity interest in accordance with regulation 19 or