The regulatory hybrid securities would have all the advantages of debt in normal times.

Sovereign debt restructurings with private creditors

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

China s investment in US government securities and other sovereign debt will continue to yield extremely low returns.

In the US, the Term Asset Backed Securities Loan Facility (TALF) program and the Public Private Investment Program (PPIP) were in effect debt forgiveness schemes aimed at sub prime mortgage holders, but on too small a scale.

Emphasizing the important role that private sector creditors play in debt relief and debt sustainability,

Even private debt payment mechanisms via courts didn t work.

Paying down private and public debt simultaneously depresses growth.

It winds up borrowing temporarily with short term debt then, as borrowing accumulates, it is refinanced with longer term securities.

In part, the decline was due to increased holdings of foreign public debt relative to private debt.

Private and public debt levels are high and possibly unsustainable.

Ireland has a banking problem. Portugal has a private debt problem.

Table 3 Recent sovereign debt restructurings with private creditors main features

If interest rates on US Treasury securities were high and rising rapidly as the debt grew, I would agree with this argument.

The recent experiences of debt restructurings with private creditors are very diverse.

What Europe and the IMF have essentially done is to convert a private debt problem into a sovereign debt problem.

Most of these private securities were sold to oil exporting countries and Europe, in particular Germany, Britain, the Benelux countries, Switzerland, and Ireland.

Six months later, after substantial official funds had been used to pay private creditors, the outstanding private debt was substantially restructured.

Indeed, these private funds account for about two thirds of all new debt.

Indeed, the objects of such speculation astound the imagination tulip bulbs, gold and silver mines, real estate, the debt of new nations, corporate securities.

Investment banks then earn fees for re packaging these securities in tranches of collateralized debt obligations, or CDO s (and sometimes into CDO s of CDO s).

Even so, the explosion in the quantity of collateralized debt obligations and similar securities went far beyond what was needed to sustain mortgage lending.

The crisis started with too much private debt and leverage, which became public debt and deficits as crisis and recession triggered fiscal deterioration and private losses were mostly socialized via bailouts of financial systems.

The result is, of course, paradoxical private funds that flow into these countries are recycled into US Treasury securities via investment of accumulated reserves.

But one economic variable has not adjusted with the others public and private debt.

It is an even less direct way to address the private, related debt overhang.

As a result, large and potentially unsustainable stocks of private and public debt remain.

Roughly half of Greece s external debt migrated from the private sector to official institutions.

The investment banks blended these securities into asset backed securities and collateralized debt obligations (CDOs) and sold them on to financial institutions throughout the world. These institutions, attracted by the high rates of return that were promised, invariably neglected the downside risks.

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

Ultimately, a significant restructuring of private and or public debt is likely to be needed in all of the debt distressed eurozone countries.

Thus, the emerging emphasis on recapitalizing the banking system and more recently, on unorthodox policies, including the purchase of private sector credit securities is correct.

Insecure Securities

Private sector deleveraging continued, but was counter balanced by rising public sector deficits and debt.

Five years on, public, private, and external debt are at record levels in many countries.

Ongoing private and public debt deleveraging has kept global demand growth below that of supply.

There, too, governments widely guaranteed private sector debt, and then proceeded to default on it.

Public debt could be reduced without fear of recession, because private demand would be stronger.

With credit markets impaired, the Fed could buy more government bonds or private sector debt.

That left individual eurozone members exposed to brutal pressure by financial markets at a time when excessive private debt was turned into unsustainable public debt.

The prices of structured securities such as collateralized debt obligations have come down, because the institutional fraud of a multi fold chain of securitizations has been detected.

And the market is prone to temporary fits of shared enthusiasm for emerging market debt, for Internet stocks, for residential mortgage backed securities, for Greek government debt. Traders need not wait to see when or whether the profits materialize.

Securing Synthetic Securities

(ii) Securities Act

Moreover, private and public sector debt levels tend to be much lower in the emerging economies.