The bonds were significantly more certain than the commons, since owners were generally not subject to dilution risk. I was not referring to the height of immediate post Lehman uncertainty. Even after the Treasury Department bought preferred shares from the financial companies, thus subordinating the US Government to the bond holders, some of the bonds were still trading at very significant discounts (> 50%) to face value. I am not advising anyone to take risks in such investments. However if one can't deal with credit risk/reward at such advantageous terms one also shouldn't fancy that one can deal with the stomach-churning volatility of equities at such trying times.
If you're comparing the bond and the equity tranches of the same single company then I agree. Most people's alternative opportunity however is in, say, the total market on the equities side. It's arguably easier to reason about the long-term future value of the entire US equities market vs. whether a certain haircut on a single company's bond is sufficient compensation for the credit risk, especially when it depends so much on arbitrary and unprecedented political decisions.
This is why information is money. Warren Buffet may have known or understood the implicit political assurances of which banks were "too big to fail." Under such circumstances any idiot can pull the trigger.
While I tend to agree that equity basket is generally better for the uninformed, one should realize that this is also dependent on the faith in the politics. Generally it is difficult today to find a company that is not leveraged outside of tech and tech companies are leveraged in their own ways. However if one takes the attitude that politicians will take care of things, just beware that such faith will be sorely challenged at trying times.
Making money on AIG and Bank of America bonds really required intelligence to understand why AIG of BoA wasn’t going to be another Lehman.