That cracking sound was the BACKBONE of the worlds financial system.

By Bix Weir

That cracking sound was the BACKBONE of the worlds financial system.




A few years back I was jumping up and down about Ambac and MBIA (monoline insurance cos.) who basically insure much of the municipal bond market. Back in the Go-Go days of "Structured Finance" a B rated city or state entity could borrow at a cheaper rate by buying AAA insurance from one of these monoline insurance companies who would back the payments with their own credit rating. This way big investment funds can buy muni paper for their portfolios due to the better rating. The problem comes once Ambac or MBIA lose their AAA rating ALL OF THE BONDS THEY INSURED LOSE THEIR AAA RATING!



Ambec Says May Go Bankrupt This Year



http://www.reuters.com/article/idUSTRE6A021F20101101?pageNumber=2



Once the muni bonds lose their higher rating many of the funds CAN'T hold the lower rated paper. And you have a mad rush to dump muni bonds.



AND THAT'S JUST A SMALL PART OF WHAT THE MONOLINES INSURE!



It's just about to get VERY, VERY UGLY out there!