Ireland Looking to Jam the Bank Bondholders

I've mentioned Ireland's problem in the past; they "faced a painful choice between imposing a resolution on banks that were too big to save or becoming insolvent [by bailing out the banks], and, for whatever reason, chose the latter."

Michael Lewis' recent article, "When Irish Eyes are Crying" also explained the situation well: "These private bondholders didn’t have any right to be made whole by the Irish government. The bondholders didn’t even expect to be made whole by the Irish government."

However, it appears that the Irish are now going to do what they (and we) should have done to the banks in the first place: reorganizations where the loss is borne by the creditors who lent money to the banks (i.e. bondholders).

If this idea (jamming the bondholders) catches on, it will make a big difference in sovereign risk profiles. If lenders to financial institutions must bear the risk of their loans to shaky financial institutions, all of a sudden sovereign debt like Treasuries look much more attractive.