Comments on: Ten Things Not To Worry About

By: Randal Freeman

Randal Freeman — Sun, 20 Apr 2008 13:09:58 +0000

I disagree with number 4 — rating agency downgrades. Your analysis posits a saner world than we have. It misses the unintended consequence of government regulation requiring, eg, money market funds to maintain a certain credit rating profile as rated by the agencies given special status by that same government. So, in the event of a rating change, holders who have such constraints must quit their holdings at the market. And in the bid-ask world of the bond market, that is a big haircut to take.

By: David Merkel

David Merkel — Thu, 17 Apr 2008 05:52:55 +0000

For MBIA and Ambac, it would mean writing little business for maybe five years, or dilution more severe than we have seen yet. The drop in home prices will affect them, both from municipalities and AAA RMBS that they have guaranteed — I just don’t think it will be enough to destroy the operating insurers — though the holding companies could die.

By: Brian Shriver

Brian Shriver — Thu, 17 Apr 2008 01:53:14 +0000

Not sure that #2 is innocuous. Here’s my reasoning. It’s easy enough to sell CDSs which generate current income but create future liability. Some people (unregulated hedge funds?) could be gaming the system a bit – selling coverage that they just might not be around to honor. Isn’t that why insurance markets are generally regulated? I think there may be some serious counterparty risk in CDS markets.

Yes? No?

By: bostonian

bostonian — Wed, 16 Apr 2008 20:30:26 +0000

re: Downgrades of the major financial guarantors.

So how a 15% drop in US home prices affect these companies? As I understand it housing is merely a portion of these companies’ business. Then again, a bad housing market eats into the budget of municipalities, which is a large part of many of the guarantors’ business.

does run-off mean death for ambac and mbia, or merely a one year respite in business? and is the market share these companies have lost since downgrades easily won back?

you seem to have better insight than most on these issues.

btw, i like your site a lot.