Bonding Over The Bond Blog: Your Emails To Me
I tried to break down how the bond insurer crisis could impact the whole economy. You wrote back (see the bottom for criticism that it is the "worst" article to date!)
Retired insurance analyst Mike S.:
"A bit simplistic, but generally on target. Good job."
Pat in Maryland:
"Wake Up People! We already have mono, we just haven't been diagnosed yet! Charlie is so right - nobody wants to be around people that are contagious!"
"Most banks and insurance companies are required to maintain high quality bond portfolios by law or regulation. If their bonds are downgraded because of the downgrading of the insurers whose insurance made the bonds high quality (investment grade), then their capital may be impaired, and their ability to do business restricted, as the amount of insurance they can write or loans they can make depends on the amount of their capital. The effect of the downgrades reaches far beyond the investment bankers who may hold a lot of these insured bonds."
"Well written article. Much better than I would have written it. I would not have been able to keep from mentioning that the reason they were insuring the sub prime mortgages was to increase their bonuses."
"This article is probably the worst written to date on the insurers and the credit crisis. 1. MBIA and ABK already are in a runoff state. NO ONE is going to them for new insurance. 2. Are there many banks who are holding CDO's with an extra billion in capital? Think again, these are the banks selling their souls to whomever has capital, from Kuwait to China. 3.A billion dollars in capital has a cost of a billion dollars. A "write down" is an entry in the books. 4. If you are a bank, how do you justify putting up capital that may well be used to pay a claim for a competitors bond? This in no way gives you priority status. FSA and AGO are taking all of the new business. This will work itself out. The proposed bailout is nothing more than a shell game. This is a pyramid scheme from start to finish. The originators (Countrywide) and the banks were on top. The insurers and the rating agencies were on the bottom. They will topple the way everyone ultimately does in a pyramid."
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