Adam Lerrick has promised the retail investors who
sign up for his scheme that he will get them their money
back: that although their coupons might drop and their
maturities might be pushed back, the face value of their
bonds will be preserved.
But there's a problem. As Brad Setser, an expert on sovereign
debt restructuring at the Council on Foreign Relations in New York,
says: "For all his fine words about preserving par value, he didn't
base his compensation structure on preserving par value." Lerrick
gets paid according to the trading value of the bonds that his
investors will end up with, not according to their par value.
Institutional investors who mark to market want to maximize trading
value, while retail investors who...
