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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: mishedlo who wrote (71775)11/28/2007 3:34:12 PM
From: KyrosL  Read Replies (1) of 116555
 
The big difference between banks owning CDOs and insurers insuring CDOs is that banks must immediately recognize the losses and take them off the balance sheet, insurers only need to pay interest and principal of the insured mortgages, typically over the course of 30 years. So, the losses for insurers are spread out over a long period, during which they can jack up their rates, and presumably make up those losses. Already, bond insurance rates have skyrocketed. So, if that industry follows the example of the property insurance industry, it should do fine. Property insurers also get hit hard during natural disasters but the rise in the rates following the disasters more than makes up for their losses in the long term.
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