Syncora, aka SCA, was ordered by regulators to stop paying out claims, triggering a default on $18 billion in credit default swaps written on the bond insurer’s own debt. The likely payout on the CDS is estimated to be around $1 billion. However, Syncora has guaranteed more than $140 billion of bonds, mainly municipal debt and structured finance. This is the first of the bond insurers, a mini-me of Ambac and MBIA, to have been forced to cease paying claims. This clearly is not a positive sign of things to come for the other bond insurers.
Remember when buying insurance was a no-brainer? So if I buy some muni-debt, not only is it backed by government receipts but it also comes with insurance! What a great risk-free investment! Want to protect a family in case of an untimely death? I’ll just give AIG a call and get some life insurance! What if I buy a new car and it happens to be a lemon? No problem, it came with a warranty from GM, better yet Chrysler. Remember when you didn’t have to look at a company’s balance sheet to determine if it was a safe company to buy insurance from? Now, not only do you have to figure out if the company will still be solvent, but also if it’s a big enough clustersuck to be considered enough of a systemic risk to be bailed out by the government. Might as well put all your extra cash into Citigroup because it has to be the most guaranteed systemic risk around.
Friday, May 1, 2009
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1 comment:
Clustersuck, great word!
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