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Pricing Terms In Sovereign Debt Contracts: A Greek Case Study With Implications For The European Crisis Resolution Mechanism, Mitu Gulati, Stephen J. Choi, Eric A. Posner
Pricing Terms In Sovereign Debt Contracts: A Greek Case Study With Implications For The European Crisis Resolution Mechanism, Mitu Gulati, Stephen J. Choi, Eric A. Posner
Faculty Scholarship
Conventional wisdom holds that boilerplate contract terms are ignored by parties, and thus are not priced into contracts. We test this view by comparing Greek sovereign bonds that have Greek choice-of-law terms and Greek sovereign bonds that have English choice-of-law terms. Because Greece can change the terms of Greek-law bonds unilaterally by changing Greek Law, and cannot change the terms of English-law bonds, Greek-law bonds should be riskier, with higher yields and lower prices. The spread between the two types of bonds should increase when the probability of Greek default increases. Recent events allow us to test this hypothesis, and …
The Conundrum Of Covered Bonds, Steven L. Schwarcz
The Conundrum Of Covered Bonds, Steven L. Schwarcz
Faculty Scholarship
Covered bonds, which have been part of European fi nance since the time of Frederick the Great, are now being widely touted as the answer to securitization’s imperfections. There is great confusion, though, about the nature of covered bonds and their relationship to secured bond fi nancing and securitization. This article attempts to demystify covered bonds, examining how they fi t within a larger fi nancing framework, analyzing their legal rights and obligations, and comparing their costs and benefi ts. The benefi ts of covered bonds are similar to those of securitization; both can access low-cost capital market funding with …