Bond insurers on Skid Row — Saviors Wanted?
(I posted the following this morning on Jim Cramer’s running column at RealMoney/TheStreet.com in response to people complaining about the Fed move and about talk of “bailing out” the bond insurers. )
We don’t need no stinking saviors. We’re tough hombres.
But the financial system, if a trillion in AAA s-f bonds suddenly have their mkt value cut at knees due to insurance failure, will have to be rebuilt from dust. Maybe our cities too.
I know Gold Bugs have been dreaming about this since Nixon. I’ve no desire for apocalypse. There is nothing normal, cyclical, about what has been going on here since the public distress of Bear Stearns in June, when a banker at CSFB told me, “S&P has put a moratorium on rating new CDOs.” That statement alone meant the finance world refashioned by Excel was broken.
JC is right to worry that the bond insurer crisis can lead to losses measured in trillion at banks worldwide. At which point there is no financial system. How much is an ounce of gold worth in the jungle?
The Free Market and its God of Greed have s__t the bed here, folks, and six months on since the CSFBer’s comment there is no market cure in sight for this partricular and excruciating confidence problem (in methodologies used to eval and rate s-f bonds).
My own thought, since August, is that a two-year price control regime on the wounded bond classes is the best available treatment.
But if the major insurers manage to recapitalize, then, in a rate environment that will no longer be exacerbating the problem, that should be enough. To prevent the general AAA & muni meltdown. We still have hundreds of billions in credit ABS to worry about, owever. Credit card bonds, auto bonds, prime mortgage bonds, maybe even, as apocalypse draws near, the David Bowie bonds …
The fed was created to prevent system failures like 1907 from happening. It is not a philosophy club. It is not the bundesbank nor even the bank of england. If we lived in Adam Smith’s age the dogma, theories and praxis of keeping an economy and society healthy would be different. For better or worse, we live in the age of Excel.
ed says:
YOW. What a day in the stock markets. Dow Industrials down 300 in the am, closed up 300. Big mover was Chris Dodd on Senate Finance Committee indicating action to bolster bond insurers — and NY State Insurance regulators convening banks to do same. The very thing needed. At least an attempt to get it done. Seems like the first green day of the year …
MBI, the largest bond insurer, was up 40%. Ambac, number two, up a whopping 70%. If solid news follows, the banking system probably won’t melt.
Here’s Joltin’ Jersey Jim Cramer reviewing the day’s action, with sound effects.
January 23rd, 2008 at 4:09 pm
Blaise says:
Folks need to stop worrying about who is going to the Super Bowl and connect the dots … the dots linking their own sinking personal finances with the financial house of cards on Wall Street — the House that Unbridled Greed Built.
January 23rd, 2008 at 6:51 pm