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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: ggersh who wrote (101637)	2/24/2009 2:34:16 PM
From: Hawkmoon	2 Recommendations Read Replies (1) \| Respond to of 110194

AIG, for one got caught by GS in this regard I would agree. But from my cursory readings, it would appear that the primary problem with AIG was that it had been writing a ton of CDS contracts against European debt, perceiving it as "easy money" based upon their perception of market stability for those debt and ABS assets. But then they found themselves facing exponential losses as Mark to Market accounting was suddenly applied to these outstanding assets, whereupon CDS' were manipulated in concert with shorting of the financial stocks (to create the perception of uncertainty and force depositor withdrawals) that create a self-fulfilling prophecy. I think there is little doubt that most of the financial insurers/monolines were a bit excessive in the coverage they provided. But given the market competition, low margins, and "confidence" that S&P and Moody's were providing credible risk assessments, it's understandable. If you don't write insurance, you can't thrive in financial surety. But there is also NO DOUBT (in my mind, at least) that the investment bankers like GS and BSC.. etc, as well as the heavily leveraged European banks, exploited the financial surety sector by colluding with the Rating Agencies to overrate toxic debt. Companies like AIG, ABK, MBI, RDN, XL, AGO.. etc, are all victims of this InvestBank/RatingAgency collusion. They've literally raped the financial surety industry and now no one can take on leverage because there's no means to obtaining affordable insurance. And the banks would like nothing more than to see these insurers go belly up because they know they are legally culpable for their fraudulent lending and credit rating practices. So where is the lending going to come from when no one can issue debt with an affordable insurance wrapper? It's why MBI and ABK are splitting their companies so they can at least service municipal debt offerings. But all of this focus on "saving the banks" without focusing on saving those who provide financial surety for the banking sector and WERE DEFRAUDED is just stupid. The banks are the ones responsible for this debacle, but the insurers hold the "keys to the kingdom" when it comes to disposing of those toxic assets. If they play legal hardball, they can tie up those toxic assets in court for years. And there's no doubt that they will win their case given the overwhelming evidence of fraudulently originated loans. So the way I look at it.. without a financial surety sector that is strongly capitalized, pumping money into the banks is a foolish enterprise. It's like borrowing money to buy a car when you can't purchase affordable insurance. Hawk