Friday, January 25, 2008
Isn’t this the same problem with the Academic system?
First it was the subprime crisis, then it was the SIVs, and now it is the bond insurers that are the problem, according to the financial press. The line is that if the bond insurers fail, the ratings on the bonds they insure will be reduced, forcing pension funds and other institutions to sell their holdings, causing a crash in the market for the municipal bonds, CDOs and other paper insured by these companies. That's a scary scenario, designed to make you feel that if we don't bail out the bond insurers, the whole system will collapse. There's good news and bad news here. The good news is that the scenario presented above is not really true, but the bad news is that the situation is actually much worse.