Monday, January 21, 2008

Whoopsie

Municipal borrowers bypass troubled insurers

Municipal borrowers in the US are increasingly issuing bonds without seeking guarantees from beleaguered insurers MBIA and Ambac, highlighting the risks of a collapse of their bond insurance business model unless confidence is restored. So far in January, US municipalities borrowed $8.6bn through new bonds guaranteed by insurers, according to Thomson Financial. This compares to over $31bn of new guaranteed bonds issued in January of 2007. About 30 per cent of the new bonds this month were guaranteed by FSA, a bond insurer with little exposure to subprime assets which have created losses for MBIA and Ambac and eaten into their capital base.

Posted by lvmreader @ 07:41 PM (2941 views)
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3 thoughts on “Whoopsie

  • What the f–k?

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  • lvmreader,

    C’mon, give us a break. Asterisked swear words don’t contribute very much to this site. Some of your posts in the last week have been very interesting but your previous comment is worthless.

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  • Sorry, I thought it was clear. These guys (the municipalities) are borrowing money without even pretending to take payment protection insurance (CDS contracts) because the Bond Insurers have been outed as unable to cope with the level of defaults.

    What this means is that municipalities across the Anglo world (and many in the Scandinavian world) are likely to default on their bond payments and lose the source of financing for projects like council buildings and road improvements. This comes at a time when increasing numbers of people are unable to even make their mortgage payments let alone council tax.

    Even worse still, many councils had invested in CDOs (e.g. Springfield, Massachusettes) and probably expected to receive some income from these worthless instruments to help pay down their bonds.
    (Think of CDOs as Buy-to-Let investments in Uzbekistan – they promise a lot, but do you even know where Uzbekistan is and what sort of Govt they have?…).

    So a triple whammy of increasingly scarce new municipal loans, reduced revenues from taxes and rates, and hardly any new revenue from VAT (sales taxes) due to people being squeezed and you have a recipe for the New Improved Great Depression – courtesy of GB(H)’s “Miracle Economy”.

    It’s a miracle, because of how doomed we are.

    This is the end of the financial system as we knew it. A new one will rise from the ashes and debris of this implosion, but it may not feel too good for us here in the West.

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