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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.

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Comments

 

the big banks,government employees,wall street are only interested in big bonuses,5 oclock ,friday,and payday,bottom feeders.

mark (Posted 01.31.08 4:22 PM) Report Abuse

Let the big bond houses take it on the chin like the big banks should have too.  I am a tax payor and I am tired of bailing out the big guys while the little guy pays more. Time for some type of revolt--

Richard (Posted 01.31.08 4:23 PM) Report Abuse

Yeah, I bought SKF a week and a half ago thinking the market would take it's course.  Now I'm completely screwed because I didn't foresee this bailout ***....

Don't short anything.  The government is too nice to let any big institutions fail.  My coworker is right-- buy big and hold it.

Screwed Idiot (Posted 01.31.08 4:23 PM) Report Abuse

I agree with the sentiment that the over paid execs should lose their stock options, astronomical pay, etc. for helping to make this mess.  However, it sounds like most bloggers on here don't understand that if the banks do not get help, the american people are gonna to take it even harder than the banks (ie. even higher rates, increased fees by financial institutions, lower return on funds, etc.).  The blame cannot be completely put on the banks for people buying too expensive of homes...they speculated just as we did that the values would continue to rise, our income would continue to rise, etc.  Did we really need the house with 2500 square ft., 4 bedrooms, 2-3 bathrooms, living room and family room, seperate dining room, etc. for a family of 4?  Do we need 2 vehicles at 30k+ in the 3 car garage?  Do we need expensive flat screen tv's, cell phones for 4, and a computer in every bedroom?  No we didn't.  And if the bank wouldn't have let us have these items, we would have screamed at them for that.  This insane mess is banks, broker's, investor's, realtors, AND CONSUMERS faults....myself as a consumer included.  

BEN (Posted 01.31.08 4:25 PM) Report Abuse

So we all rant and rave about how horrible socialism is especially when it has anything to do with helping those who need it the most. But it seems to be all right when it comes to helping the banks, multi-national corporations and the rich folks with handouts, supplements and tax breaks.I know the rich folks "JUST WANT TO BE RICH" just like the poor folks "JUST WANT TO BE POOR" or is it the old adage about if we don't help out the haves we might not get their crumbs.what a crock of ____________! We deserve what we get for being so stupid.

paul (Posted 01.31.08 4:26 PM) Report Abuse

bail out the big bank makes a lot of sense.  they contribute more than an average person on the political campaigne.  ain't I right?

Bling (Posted 01.31.08 4:27 PM) Report Abuse

LET THE BANKS BAIL THEMSELVES OUT. THE BIGSHOTS CAN FORFIET THEIR BONUSES FOR A YEAR OR TWO.  

SPO (Posted 01.31.08 4:30 PM) Report Abuse

Let the big banks eat the mess they cooked up. Attitude ajustments are in order. How much bonus do you earn on lost income?

Levon Ezell (Posted 01.31.08 4:31 PM) Report Abuse

Big banks don't need bailing out...hence what they're called..BIG BANKS! I"ve made some bad investments in the past, and I learned from it; maybe they should learn from theirs. These are multinational, billion dolalr companies that need the help of the government? It's rediculous. Any small business that made a abd investment seeked government help, they would get laughed at.

Over $120 billion was given out to Executives on Wall Street this year. How unfair is that? These banks lost sharehodlers billions, and CEO's/Executives are being rewarded with millions of dollars in bonuses.

BIlly (Posted 01.31.08 4:31 PM) Report Abuse

I agree with Greenspan and Buffett. Maybe kulling the herd of inept bankers is over due, and  will teach other gready twits.

Tim (Posted 01.31.08 4:31 PM) Report Abuse

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