Saturday, February 9, 2008


The biggest financial story you've not heard of is going on still. Without getting too far into the weeds on the story, the bottom line is that bond insurers are in big trouble, which means big trouble for all of us. John Mauldin:

In talking with friends in the credit markets, in order to return to more normal credit markets, the thing that has to happen first is that the monoline insurance problem MUST be resolved. I agree with Nouriel that $15 billion being written about in the papers will not be enough. I have no idea what the correct number is, but it needs to happen soon, before the rating agencies are forced to downgrade the monolines.

While Nouriel thinks the use of public funds is unlikely, I am not so sure. The failure of the monoline companies could trigger a very serious crisis, beyond what we have already seen. Of all the things on my worry list, this is at the top. It could trigger a counter-party credit risk in the credit default swap markets that might simply cascade to something hard to imagine. I don't want to sound too alarmist - but we should be alarmed. This needs to be settled, and soon, so we can go on to the next set of problems. I think if the monoline problem can be resolved, we would be a major step toward the solution of the crisis.
There's a lot of information on this if you want details. I put it up for two reasons. First, there's a very real and genuine possibility that the insurers problem could cascade the U.S. economy into a full fledged depression. Of course no one wants that to happen and I agree with Mauldin that the government is going to have to step in to solve the problem. Period. Which brings me to my second point. Wall Street fat cats made this problem, and now they're going to get bailed out by the government. That's called welfare, plain and simple.

If you're some poor schmuck who loses a job due to an economic mess created by these bozo's, tough shit on getting any extra benefits to see you through. But if you're a Wall Street banker, all you have to do is go very far out on a limb (making a gazillion dollars along the way), and then when the limb snaps uncle sam will catch you in a sweet soft hug.

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