Bondholders of sovereigns or banks should take on some of the burden if the issuers are bailed out with taxpayer money, former Bank of England policymaker Charles Goodhart was quoted as saying today.
"In the long run, this is a good idea," Goodhart told Austrian newspaper Die Presse in an interview published today, asked about Germany’s demand that bondholders should participate in bailouts of European nations.
"In the case of problem banks, creditors should carry some of the burden as well," he said. "But in the short run, Chancellor Merkel’s unilateral proposal increases uncertainty dramatically. This is doing great damage and destroys value."
"Such an exercise should be done in private, behind closed doors," he said, according to the newspaper, which published the interview in German language.
Goodhart also said that the Federal Reserve’s new policy of quantitative easing was "of course" creating new bubbles. "A big part of the new liquidity is flowing into emerging markets. Look at China and the commodities markets," he said.
"The effect of the quantitative easing is that asset prices are inflated in the rest of the world," he said.