liongterm investor

Bill Gross: 'Pick Me! Pick Me!'

Gross and others are insistent that the holders of equity not be rescued since an investor there is risk when stck is purchased. This is a good use of the "moral hazard" argument.

However, when an investors buy DEBT, they also assumes risk - whether an individual, a large bond fund or even foreign countries in the case of FRE and FNM.

IMO coming to the rescue of Gross and other holders of
the debt is a worse moral hazard than saving the shareholders. After all, it was the debt markets that exhibited the risky behavior. I suspect that most of the FNM and FRE shareholders held the stock because they thought it was a conservative investment. The big traders of debt knew what they were doing and deserve to go down with the ship, right along with the holders of the equity if those companies fail. Otherwise the debt traders, now free of any pain and with some assurances that they will be held harmless in the future, will once again resort to the risky behavior that got them into trouble in the first place.