Treasury Secretary Henry M. Paulson Jr. is promoting covered bonds, a mortgage-financing vehicle popular in Europe, as a safer way to raise money for home buying in the U. S. The question is, safer for whom? If covered bonds catch on, they will magnify the losses the Federal Deposit Insurance Corp. suffers in the case of bank failures, thus exposing taxpayers to the risk of more big bailouts.rnTo put it bluntly, covered bonds wouldn't reduce risk as much as transfer it from bond buyers to the U.S. taxpayer. Surprised? No wonder, since this hasn't been a big theme of the Treasury Dept.'s publicity blitz. Paulson sees covered bonds as a new funding source for mortgages at a time when investors are backing away from the radioactive mortgage-backed securities market.
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