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A bailout for bond insurers. How about big banks?

Posted Jan 29 2008, 05:08 PM by Douglas McIntyre
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The head of insurance regulation in New York is busy as a bee trying to bail out Ambac and MBIA. According to the FT, "Eric Dinallo, the New York state insurance superintendent, is being privately supported by the New York Federal Reserve Bank and other regulators." If the muni bond insurance companies go under it could lead to a new round of fixed income instruments write-offs which would hurt Wall Street balance sheets.

If the government is going to drag the muni bond insurance companies out of their mess, why not a little help for the likes of Citigroup, Washington Mutual, and Wells Fargo?

Mr. Dinallo is attempting to get the big U.S. banks to provide the bond insurers with $15 billion in credit to shore up their balance sheets. It is an interesting proposal but it does beg the question of where the cash-strapped banks will get the money. It could be the beginning of a 21st Century version of borrowing from Peter to pay Paul. 

Aid to bond insurance companies is an artificial way to keep a part of the market that probably should collapse from collapsing. Fellows like Alan Greenspan and Warren Buffett want the free market to take its course. The only argument against that may not be very compelling. A bailout probably keeps Wall Street from a panic that would leave tens of thousands unemployed and the financial sector torn to ribbons.

But, in the calculus of which financial institutions mean most to the system, the largest banks and brokerages would seem to be at the bedrock. The government does not seem to be at work there. It has left most of that to sovereign funds and new management teams.

Saving the bond insurers and letting the big banks struggle is like saving the leg but letting the body die.

Comments

 

why not let the bond insurers and big banks take care of themselves instead of the gov bailing them out.  a small buisness does not get bailed out because the owners go broke.

you have got to be kidding me, bailing out banks? They took the risk, made stupid decisions, and ultimately the little guy has to pay? Doesn't making bad business decisions have consequences anymore? same with the mortgage companies. Let the greedy and stupid pay for their mistakes. The dopes that sold mortgages to people that couldn't pay and shouldn't have houses should be fired, and the financial morons that bought houses and didn't care to know what they were getting into should sink, instead of everyone looking to someone else to bail them out

ok save the banks what about all the people loseing homes how about helping them

if the banks would work with these people help them and look at all this interst some has made i beleve if the banks were not so money hunger and look at these subprime loans in a way to help if someone has 15% well refince it so they have 7% would it be better for people to keep there homes pay less but there would not be this mess right now

what do you think

I am sympathetic that the BIG banks are losing money.  However let's understand the root of the banks' problem.  They lost all these money based on greed and/or speculaton.  It has nothing to do with any common citizen.  It turns out that I am a gambler and I lost $ in the casion.  Why not let the government bail me out?  The banks irresponsible behaviour becomes the whole country's problem.

It becomes ridiculous that the entire country is dragged down by the super-duper greedy wall streeters.  It is more unfortunate that our government needs to use the resources to bail out these punks, rather for more meaningful ways, i.e. education, health care.

God bless the government!

Big banks must learn by their mistakes otherwise what do they have to lose by making risky loans and making huge up front profits in the short term knowing they will get a bail out down the road if they run into trouble.  The big banks went into these loans with their eyes open and their ear to the ground and they got caught. As far back as 10 years ago professional people knew that the real estate bubble was not going to last forever.

Some banks were conservative, smart and used good common sense. The big bank boys thought they were 10 feet tall and bullet proof.

The big banks need to take their medicine like a grown up and perhaps next time they will think and aim before they shoot.

Rescue Big Banks and Bond Insurers?? Are you totaly stupid? They created this mess out of greed.  Let them bail each other out. Maybe a little Islamic law whould apply in this case.

Lets start the bailout by getting back the massive wallstreet bonus money that was paid in the last three years.  Why do we need to bailout foolish bank management and underfunded insurance executives.  Shame on the MBA's and captain's of industry for their greed and follish investments.  I don't loan my brother money he can't afford to pay back, why did they?  Wallstreet needs to feel some pain and maybe they would learn.

Read "The Creature From Jekyll Island: A Second Look at the Federal Reserve".  Large bank bailouts appear to the name of the game

No industry has had the luxury of too big to fail, be it steel, railroads, airlines etc. The banks can continue to make mistakes, mine the fed for cash, manufacture bogus financial instruments, and still make year end bonus that most people can only dream of.

The federal government has always bailed out big business and supported tax benefits for the ultra wealthy. Remember the S & L troubles, Chrysler, recent tax cuts, relief from taxes on autos costing over $100,000(Hummer). The only things trickling down to the midddle class and small business are more taxes, higher prices, no significant wage increases, unaffordable health insurance. The banks, brokerage houses should take it on the chin. Instaed of giving such inflated severance packages to executives who did not do their job with due diligence, give them  the same severance as a laid off auto or airline employee.

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