Bond Returns...
Bradford DeLong was struck by a finding in Reinhart and Trebesch’s paper showing that, historically, real ex-post returns on defaulted bonds were in the range of one to five percent, despite the losses due to haircuts and arrears.
Notwithstanding Jeremy Bulow and Kenneth Rogoff’s demonstrations that one should never do so, when crises come creditors somehow have enough control to squeeze the lemon hard, regardless of the excess burden in taxes and other costs imposed on the Greeks.
Echoing Romer’s question to Reinhart, DeLong asked: Is it really the case that a country should never borrow in a currency it cannot print unless it happens to be Canada or Australia? And if so, should a country never let its firms borrow in a currency that it cannot print, because the private debt will be turned into a public debt during the crisis when everyone is looking to kick the can down the road?
DeLong wondered whether alternative baselines were needed to assess this. Likewise, he wondered what would have been the macroeconomic consequences for Texas in the early 1990s had the U.S. government insisted that Texas reimburse the Resolution Trust Corporation for payments made to depositors in the Texas savings and loan crisis.
