Friday, January 25, 2008

Isn’t this the same problem with the Academic system?

The Bond Insurance Crisis, or, My Fig Leaf is Falling

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.

Posted by lvmreader @ 06:51 PM (631 views)
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2 thoughts on “Isn’t this the same problem with the Academic system?

  • “The system has failed”. George Soros tells us it’s the worst financial crisis since WW II. Another way of putting it is that it’s the worst financial crisis since the Depression of the early 1930s. The difference between now and then is that in the 1930s the US had savings and a current account surplus that helped to liquidate most of the debt piled up in the late 1920s. There is no such liquidity buffer now.

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  • japanese uncle says:

    You forgot something. In those days US/UK governments was not suffering such horrific budget deficits as they are now, thus they had a lot of ammo for maneuvring fiscal stimulus. Now what can Crash G or his lapdog can afford to do? Virtually nothing, unfortunately.

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