The public sector was willing and ready to jump on the private whenever it thought it could claim something had been missold to the investing public. There were demands for compensation, reparations and confessions. The perpetrators had to face the wrath of the Regulators.
I do not expect there to be so much censureship of governments for misselling their own bonds. The one thing governments are usually good at is covering their tracks or deflecting anger. We are living through a government bond crisis of some magnitude.
Holders of Greek, Irish and Portuguese sovereign bonds have already lost much of their money. They are now told that bonds they were sold as investment grade safe products are downgraded. In the case of Greece their junk bond status is one where the markets assume the government will not be able to meet all the payments owing on these loans.
Holders of US and UK sovereign debt have seen the value of their holdings cut by devaluation. When they get their interest and capital payments, they will no longer buy as many Chinese or Indian goods as the money they lent to the governments in the first place.
There are many overborrowed governments. Some will succeed in cutting spending, boosting revenues and meeting their obligations. Some will succeed in making the payments necessary, but will do so by printing more money and repaying in devalued currency. Some will fail to meet all the repayments, and will default.
The UK official forecast assumes losses on gilts held for the next four years, as they predict rising official interest rates. After a decade of positive returns on gilts as interest rates and yields were driven down, the next next few years may not be so benign.
I wonder what all those will be saying who recommended large holdings of sovereign bonds as safe and matching assets for various funds? I wonder what the governments that issued these bonds will be saying and doing, if the losses mount, one way or another?
I do not expect to see much action about the big sovereign bond swindle, which is already engulfing Greece, and could spread much wider.
The Credit Crunch is now entering its next phase, the sovereign debt phase. They kicked the can down the road from the troubled banks, only for it land up in the state’s backyard. The sovereigns have built a banking system based on their own borrowings. If those same sovereigns can no longer meet all the repayments at all, or without devaluing, they are undermining the very banks they claim to be suporting and regulating well.