Wednesday, January 23, 2008
Bond insurance crisis looms on Wall Street
Insurers of housing debt exposed to $125-billion in the shaky U.S. credit market
Ben Bernanke may have temporarily halted a crippling nosedive in global stock markets, but bankers aren't convinced the U.S. Federal Reserve's surprise rate cut yesterday will address what is emerging as a growing threat to the economy: monoline bond insurers.
Monolines, the latest entry in Wall Street's expanding lexicon of doom, have always operated on the fringes of the financial system. Originally, they made money by guaranteeing bonds for municipalities: They would promise to pay the interest on these bonds if a town or city defaulted on the payments.
Beginning around 2000, however, many of these firms migrated into more complex products, and began insuring securities such as collateralized debt obligations (CDOs), which pool various forms of debt, including subprime mortgages.
Of the $2.4-trillion (U.S.) worth of insurance coverage these companies provide, approximately $125-billion is tied to the faltering home market, according to industry estimates...
Globe and Mail: Bond insurance crisis looms on Wall Street
Ben Bernanke may have temporarily halted a crippling nosedive in global stock markets, but bankers aren't convinced the U.S. Federal Reserve's surprise rate cut yesterday will address what is emerging as a growing threat to the economy: monoline bond insurers.
Monolines, the latest entry in Wall Street's expanding lexicon of doom, have always operated on the fringes of the financial system. Originally, they made money by guaranteeing bonds for municipalities: They would promise to pay the interest on these bonds if a town or city defaulted on the payments.
Beginning around 2000, however, many of these firms migrated into more complex products, and began insuring securities such as collateralized debt obligations (CDOs), which pool various forms of debt, including subprime mortgages.
Of the $2.4-trillion (U.S.) worth of insurance coverage these companies provide, approximately $125-billion is tied to the faltering home market, according to industry estimates...
Globe and Mail: Bond insurance crisis looms on Wall Street
Permalink posted by markw @ 7:25 AM 
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