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(Marketwatch)   In another stunningly brilliant move, MBIA withdraws from the Association of Financial Guaranty Insurers. Releases a statement saying, basically "Screw you guys. We're doing our own thing."   (marketwatch.com) divider line 30
    More: Asinine  
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1150 clicks; posted to Business » on 22 Feb 2008 at 1:09 AM (6 years ago)   |  Favorite    |   share:  Share on Twitter share via Email Share on Facebook   more»



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2008-02-21 10:46:41 PM
can we get a financial Farker in here to explain the importance of this to the rest of us that got liberal arts degrees?
 
2008-02-21 11:09:25 PM
bcbebop: can we get a financial Farker in here to explain the importance of this to the rest of us that got liberal arts degrees?

Bond insurers sell their AAA credit rating to your city/town for a fee so they can issue bonds to build schools/roads/flying cars. Your city saves hundreds of thousands in interest by doing this.

If these companies fail, your city/town will have to pay a higher interest rate because the rate will reset at a higher rate because the bond insurer is no longer backing the bond with a AAA rating.

Your property taxes go up to pay the higher costs associated with the bond. Also, new bonds are being ignored by investors because they are waiting to see what happens. If your city needs a new school right now. Good luck.

It's only a $2.6 trillion market. Why worry?
 
2008-02-21 11:30:25 PM
NewportBarGuy: bcbebop: can we get a financial Farker in here to explain the importance of this to the rest of us that got liberal arts degrees?

Bond insurers sell their AAA credit rating to your city/town for a fee so they can issue bonds to build schools/roads/flying cars. Your city saves hundreds of thousands in interest by doing this.

If these companies fail, your city/town will have to pay a higher interest rate because the rate will reset at a higher rate because the bond insurer is no longer backing the bond with a AAA rating.

Your property taxes go up to pay the higher costs associated with the bond. Also, new bonds are being ignored by investors because they are waiting to see what happens. If your city needs a new school right now. Good luck.

It's only a $2.6 trillion market. Why worry?


Ok, can I get a different Financial farker in here to explain that explanation?
 
2008-02-21 11:38:16 PM
If they lose their AAA credit rating you will see a substantial increase in your property taxes. Hint: They are going to lose their AAA rating.
 
2008-02-22 01:41:49 AM
LOL at these responses
 
2008-02-22 02:08:40 AM
The article doesn't even tell me what a Mbia is.
 
2008-02-22 02:17:38 AM
Actually, it sounds like MBIA is right in this case. Separating the insurance of safe muni bonds from the insurance of the latest crazy security that came out of Wall Street's Cuisinart is probably a good idea.

But hey, I was a liberal arts major so what do I know.
 
2008-02-22 06:02:27 AM
Can a marine-biologist farker stand up and explain the situation, please?
 
2008-02-22 09:36:22 AM
Ok, here's the skinny:

MBIA want to seperate the Muni bonds business from the other parts because the other parts are messing up their credit rating. The trade group disagrees, and thinks that insuring other stuff, such as subprime loans, is kosher.

So MBIA is pulling out of the group.
 
2008-02-22 09:50:54 AM
Of course, MBIA is only trying to do this now because they screwed up horrifically with subprimes and are about to get nailed to the wall for it. They were perfectly content for everything to be bundled together previously.
 
2008-02-22 09:53:57 AM
MBIA hasn't lost yet. If it can get $1-2 billion in cash it can make it to the next month
 
2008-02-22 11:16:01 AM
bcbebop: NewportBarGuy: bcbebop: can we get a financial Farker in here to explain the importance of this to the rest of us that got liberal arts degrees?

My translation:

Bond insurers sell their AAA credit rating to your city/town for a fee so they can issue bonds to build schools/roads/flying cars. Your city saves hundreds of thousands in interest by doing this.

If these companies fail, your city/town will have to pay a higher interest rate because the rate will reset at a higher rate because the bond insurer is no longer backing the bond with a AAA rating.

Your property taxes go up to pay the higher costs associated with the bond. Also, new bonds are being ignored by investors because they are waiting to see what happens. If your city needs a new school right now. Good luck.

It's only a $2.6 trillion market. Why worry?

Ok, can I get a different Financial farker in here to explain that explanation?


Companies with good credit ratings ("AAA") let cities and towns pay a fee to earn the benefit of low interest rates on bonds/notes. The cities save tons of money in interest. If the company tanks, then the "AAA" rating gets downgraded and interest rates go up. Your city/town either has to cut programs or raise taxes to cover it. A lot of money is at stake, and things are looking shaky.
 
2008-02-22 12:05:33 PM
hatch500: A lot of money is at stake, and things are looking shaky.

Reading Bloomberg today and they had an article on bond offerings: 62% fail rate and interest % skyrocketing. Since the market was created (1984) there have only been 44 failures up to the end of last year. Yesterday there were 395 failures.

Makes me feel shaky too.

http://www.bloomberg.com/apps/news?pid=20601087&sid=ac4g6JSjeG8A&refer=home
 
2008-02-22 12:14:29 PM
They should just refi. Did you know that interest rates are dropping again? ARM vs. Fixed: ARM Rates are Lower! Could You Be Saving? No Closing Cost Refi. No Points. No Credit Report or Processing Fees. Any state. Just look at how happy these dancing people are.
 
2008-02-22 12:51:34 PM
Okay, here's another question for the economically-minded: is there any chance the collapse is going to start happening this year? Because since Bush is hellbent on doing anything to delay it until 2009, I'm guessing he may not make that happen.
 
2008-02-22 01:12:59 PM
If it helps anyone understand, what MBIA (I think it stands for Municipal Bond Insurance Association) does... MBIA insures the bonds 3rd parties issue. They take a look at you, assess how likely you are to be able to pay back the bonds, and charge you a price. If you can't pay back the bond, the lenders go to MBIA to get their money.

This is of value to investors and rating agencies like S&P, Moody's, etc give a grade to MBIA, and in effect every bond it guarantees. The better the grade, the lower the risk it will not be repaid, and the lower the interest rate.

Instead of each company/government holding money in reserve to insure itself, companies like MBIA known as mono-line insurers, hold one larger pot of money to insure the aggregate risk of many lenders. The problem is MBIA sold insurance at too low of a price for securities related to subprime mortgages. They aren't very public about it, but in short they don't have the big pot of money needed to insure every piece of paper their name is attached to.

If the monoline insurers all go down, or their prices go too high, auction-rate borrowers would suddenly have to go from borrowing when they want to planning far ahead to build up a capital fund. This would mean politicians giving up their jobs by being forced to raise taxes at a time when they hit the hardest.


jgbrowning: hatch500: A lot of money is at stake, and things are looking shaky.

Reading Bloomberg today and they had an article on bond offerings: 62% fail rate and interest % skyrocketing. Since the market was created (1984) there have only been 44 failures up to the end of last year. Yesterday there were 395 failures.

Makes me feel shaky too.

http://www.bloomberg.com/apps/news?pid=20601087&sid=ac4g6JSjeG8A&refer=home


It should be noted, for the benefit of others, that jgbrowning was talking about the auction-rate market. Shorter term debt, 30-90 days, The borrowers can be local governments, hospitals, museums, student-loan agencies and closed-end mutual funds that are financing anything from ports, bridges, highways, hospitals, schools, and airports.

In the case of the municipal government bond market, the risk is twofold. First declining property values will force municipal governments to raise the tax/mill rate. The second is speculators turned landlords will be squeezed further and force many more into bankruptcy, and more bankruptcies completes the feedback cycle

The student loan default rate has been climbing, probably because many school broke the law in steering students to usurious lenders that gave the schools kickbacks (although most student loans are government insured, for now.) Unlike the last time the economy took a big downturn, in the 1970s, the tuition is far from being a joke.

In general there is a huge list of unfunded obligations by the borrowers in the auction rate market. I'm counting everything from necessary capital investments (infrastructure deficit), to pension plans that will begin to see significant withdrawals.
 
2008-02-22 01:28:52 PM
Guntram Shatterhand: Okay, here's another question for the economically-minded: is there any chance the collapse is going to start happening this year? Because since Bush is hellbent on doing anything to delay it until 2009, I'm guessing he may not make that happen.

Bush's stimulus plan based on the 2001 experience, will see about 20% of money handed go towards new spending (very optimistic considering changes in debt and the 2001 'rebate' also eliminated a tax bracket). That buys about 2 months of regular job growth.

The forces at play in the economy are so big that there isn't much that can be done to delay it.

Keep an eye on China and its domestic inflation. The riots have been increasing and the Chinese government will be forced by its citizens to let their currency appreciate faster. When that happens the cost of living the in the US will be forced up in 3-9 months (or whatever the inventory lag time is).

So headline inflation will be pushed up, after being held down by the Chinese for so long, and the Fed will have cut rates to the bone. If inflation builds up any momentum then you could expect 1980s inflation rates in the double digits. If that happened, the American economy's trump card of stability will be gone.

Seeing as how stock markets (ignoring derivatives and bonds) in the US total well above the GDP of the US, there is a huge number of dollars that could be dumped as investors flee to safer currencies. At that point there isn't much that can be done except to hope that the US can do as well as Britain following the collapse of the pound.

But if you've ever been on Television, you will recognize that such a thing has never happened before in the history of the world. Just like the collapse of the housing market in the modern US has never collapsed before.
 
2008-02-22 01:35:39 PM
Ok, another question for the suits here.

Japan went through a crazy land bubble as well back in the 1990s, which then popped around 1989 and the nikkei index crashed and went flat for a long long time.

But Japan has come back, isn't is possible that the US is simply going to have to learn the lessons the japanese did (and the canadians to a smaller extent)?

r
 
2008-02-22 01:36:55 PM
Darn, I meant to say Japan went through a bubble in the 1980s!

Damn you eyes! Damn you, both of you!
 
2008-02-22 01:40:37 PM
h to the 'ojo: It should be noted, for the benefit of others, that jgbrowning was talking about the auction-rate market. Shorter term debt, 30-90 days, The borrowers can be local governments, hospitals, museums, student-loan agencies and closed-end mutual funds that are financing anything from ports, bridges, highways, hospitals, schools, and airports.

I should have pointed that out as well in my post. Thanks for making it clearer for everyone reading.
 
2008-02-22 01:44:02 PM
rob.d:
chart.finance.yahoo.com

You can't exactly say Japan has recovered. There is so much unique to their original problem and how they've handled it that you can't extrapolate that much without being so specific that you write out an entire report

However, good eye for spotting one situation with many of the same overtones.
 
2008-02-22 01:54:54 PM
jgbrowning, no worries mate. I just put that in there because a few people were still asking questions about what was going on.

and a repost of the Nikkei 225 Index, this time no log on the price scale.
ichart.finance.yahoo.com

The Nikkei is like the Dow Jones Industrial Average (aka Dow 30, top 30 biggest public companies in America). Click the link to see the companies that are in it. Great ones like Sony, Honda, Toyota, Mitsubishi, Toray, and many other tech related companies making bank selling materials like carbon fiber or the high profit margin little widgets that are exported to China for assembly.

It will probably dip below 10,000 again this year. Imagine having invested in 1985 only to have made no money over 23 years. That is before considering inflation or increases in the cost of living (granted Japan hasn't had much inflation recently ). One of the notable features in Japan is the lack of a common retirement plan, it's why everyone there is paranoid about saving enough.
 
2008-02-22 02:29:38 PM
Hey, it's not like the US has a common retirement plan anymore either. All it is currently being used as is a trough for pork. I am paying approximately 20% of my paycheck into social security, and I will get 0% of that back when (or if, given the way retirement age is going) I retire. Do you honestly think it will still be around in ten or twenty years, at that?

I saw someone else in another thread mention something apt: "The American Dream is now owning a dog and a condo."
 
2008-02-22 02:40:48 PM
Ok, thanks for the insight.

Now I recently read in Harpers that the US has become addicted to bubbles, and that the tech bubble beget the mortgage bubble because policy (both business and government) made it so.

It times past a bubble was something to be avoided, so rules and regulations were put into place to make sure nothing like that happens again. Many of the rules applied post 1929 crash were dumped in the 1990s, which helped the tech bubble. The mortgage bubble was then created to help get over the tech bubble and that the US will need another bubble to get over this one.

The author thinks that policy will be set in motion to create an "alternative energy" bubble, and all the players are going to jump on board and help create it.

Any opinions?

r
 
2008-02-22 02:42:56 PM
FYI, here is a linky
Link (new window)
 
2008-02-22 04:09:54 PM
h to the 'ojo: MBIA hasn't lost yet. If it can get $1-2 billion in cash it can make it to the next month

They can put on a variety show! It worked for the Bradys.
 
2008-02-22 04:18:14 PM
hatch500: Companies with good credit ratings ("AAA") let cities and towns pay a fee to earn the benefit of low interest rates on bonds/notes.

This is how I read that:

Cities with high credit risks have been paying companies money so they can get a better credit rating.

Company: Hey Pleasantville, we're going to tell everyone that you have crappy credit.
Pleasantville: We're screwed if you do that. Is there something we can do to fix are credit.
Company: Yeah, give us some money and we'll tell everyone you have good credit.
 
2008-02-22 07:56:38 PM
CheetahMk2: Hey, it's not like the US has a common retirement plan anymore either. All it is currently being used as is a trough for pork. I am paying approximately 20% of my paycheck into social security, and I will get 0% of that back when (or if, given the way retirement age is going) I retire. Do you honestly think it will still be around in ten or twenty years, at that?

I saw someone else in another thread mention something apt: "The American Dream is now owning a dog and a condo."


OMG! I'm Net-Famous!
 
2008-02-23 11:58:48 PM
Guntram Shatterhand: Okay, here's another question for the economically-minded: is there any chance the collapse is going to start happening this year? Because since Bush is hellbent on doing anything to delay it until 2009, I'm guessing he may not make that happen.

Yeah, and I can remember when Bush was screaming RECESSION during his first election campaign. That curfuffle was a pittance compared to what we are about to experience.

I hate that man with every fiber of my being.
 
2008-02-24 04:08:11 AM
h to the 'ojo: You can't exactly say Japan has recovered. There is so much unique to their original problem and how they've handled it that you can't extrapolate that much without being so specific that you write out an entire report

I think one of the differences is the US will try to weed out the insolvent companies much faster than Japan did, which will be more painful but only in the short-term.
 
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