Three Notes on Current Market Matters

1) One year ago, I opined that there would be legal difficulties splitting the financial guarantee insurers into municipal and non-municipal businesses. Two articles, though I think I wrote more:

The powers that be tried to conspire, because it favored municipalities (them!).  Now a hedge fund with an economic interest sues to stop the split.  No surprise.  Why should debtholders allow themselves to be disadvantaged from the split?  Now, will the structured finance buyers step forward?

2) Will bondholders of “too big to fail institutions” take a hit?  I have thought so, but here is another article indicating an increase in political pressure there.

3) Should life insurers be bailed out? No.  Will the big life insurers be bailed out?  I think so.  The state guarantee funds rely on the solvent insurance industry to pay up, and if a lot of the big insurers fail, those guaratee funds will severely tax the surviving life insurance industry.  A sad situation, would that we would force life insurers to be more conservative in their leverage posture.