After eight tumultuous years, the President of the European Central Bank, Mario Draghi, will retire at the end of October. For many, his legacy will be the carefully chosen words and the effectively crafted actions widely credited with saving the euro.

Often overlooked today, the initial omens for the new ECB President were far from promising. Confronted by punitive bond yields in the euro-zone periphery and stubborn orthodoxy in the euro-zone core, the early months of his tenure proved a tortuous and largely thankless balancing act. The fears of both pressured peripheral debtors and hawkish core creditors continued to mount with only the short-sellers of peripheral bonds profiting from the growing crisis. For many observers and investors, especially those outside the euro-zone, the poorly designed project was in its death throes.

But Draghi’s now famous promise at a conference in London to mark the start of the 2012 Summer Olympics was a decisive riposte: ‘Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.’ He proved as good as his word, and his actions soon dispelled any doubts about the commitment or the capacity of the ECB to avert a disorderly splintering of the euro-zone.

Arguably of greater relevance today, Draghi never raised interest rates. On the contrary, the final act of his eight years at the helm of the ECB was a further cut in key rates last month. While the main refinancing rate was kept at zero, the deposit rate paid by the ECB to eurozone banks was cut further into negative territory and is now minus 0.5%. This legacy of historically low interest rates and its many consequences is what now demands attention.

Theoretically, there are at least two reasons for interest rates to be positive. Firstly, the need to compensate creditors for postponing consumption i.e. the time value of money, and secondly, the need to compensate creditors for the varied but unavoidable risk of not being repaid i.e. credit risk. In practice, since at least the earliest references to debt in the ancient world, the fact of debtors compensating creditors has been widely accepted. This continued through the classical period, and even in Medieval Europe where usury was forbidden by the Christian Church, interest-bearing loans were the norm.

“Lending at a guaranteed loss only makes sense if another buyer can be found who is prepared to risk a bigger guaranteed loss. Clearly, we have entered the world of the greater fool theory.”

Across Europe today, the inversion of this long history – with many creditors now compensating debtors – starkly defies both theory and practice. Bond investors at every maturity out to 30 years are now paying for the privilege of loaning money to the German and Dutch governments, while mortgage borrowers in neighbouring Denmark are being paid to borrow and buy houses. In the corporate world meanwhile, there are over 100 issuers that have all their euro-denominated bonds yielding less than zero. This means Euro 1.1tr – half of the entire Euro corporate bond market – is now ensconced at sub-zero yields.

This is nonsense. Yet it seems that the growing familiarity of such nonsense may be quelling its capacity to shock. Adapting to the previously unthinkable may be a deep-rooted and often necessary human trait, but familiarity can sometimes prove a costly excuse for complacently accepting the nonsensical.

In this case, lending at a guaranteed loss only makes sense if another buyer can be found who is prepared to risk a bigger guaranteed loss. Clearly, we have entered the world of the greater fool theory. Instead of forming a rational view on the value of their investment, investors in many euro-denominated bonds are simply assuming that they will always be able to sell at a higher price to a greater fool. This cannot last.

Strikingly, stock-markets have followed a very different path. Although rising strongly since the global financial crisis, stock markets have continued to offer earnings and dividend yields comfortably as attractive as the historical norm. In contrast to their bond brethren, stock investors have continued to be compensated by attractive income flows in return for risking their capital. Furthermore, earnings and dividends offer the crucial capacity to grow.

Importantly, this has wrenched open a yawning gap between the positive and growing income on offer from stocks, and the static and negative income on offer from many bonds.

Ben Graham, the man who the most successful investor in history, Warren Buffett, credits as his teacher and inspiration once summarised his deceptively simple approach to investment:

‘The only (investment) principle that has ever worked well consistently is to buy common stocks at such times as they are cheap by analysis, and to sell them at such times as they are dear by analysis. That sounds like timing; but it is not really timing at all but rather the purchase and sale of securities by the method of valuation’.

It seems safe to assume that the kind of value opportunity currently offered by many stocks would have appealed greatly to Ben Graham, and it is little surprise that his greatest student is of the same mind. Speaking recently to CNBC, Buffett was characteristically clear on what he believes this era of historically low interest rates – the key legacy of Draghi – means for the (mis) pricing of assets today:

‘If I had a choice today for a 10-year purchase of a 10-year bond at whatever it is … or buying the S&P 500 and holding it for 10 years, I’d buy the S&P in a second. Interest rates govern everything, and if there were a way to short 30-year bonds and own the S&P for 30 years, I would give you enormous odds that the S&P is going to beat 30-year bonds.’