Father Jubak Explains It ALL: Guide to Credit Contagions
While we'll put this in our regular clipping files this is just an incredibly good summary of how the credit markets, over and above everything that's happened from Bear's spring surprises to last to to, let's say, Jan. of this. It traces the spread of rippling consequences in one of the few articles that even we understood. Here's the exceprt but if you haven't had too many scotches to digest the prior post go read this one while you're still clear-headed. It is superb.
A painful fix for the credit crisis Splitting the debt insurers in two -- an idea the banks hate -- would be drastic medicine. But for the financial markets, it's the only relatively fast-acting antidote available. It's the end of the beginning for the credit crisis: There are now plans to split up the companies that insure bonds and derivatives based on mortgages and buyout loans. What that means for you and me is that the credit crunch -- which has hobbled the stock and bond markets and is causing the U.S. economy to grind to a halt -- would be over in 2008 rather than producing a Japanese-style lost decade. The breakup plans also would lead to tens of billions more in write-downs from banks and other investment companies that have already written down tens of billions. And I'd expect the likely losers from these plans would fight them tooth and nail in the courts. It could be years before all the litigation was settled. But confirmation that a big insurer like Ambac Financial Group (ABK, news, msgs) is well along in talks to pursue this kind of breakup will provoke a rush to the exits by investors and institutions. They know prices for risky debt aren't going to get any better and could indeed get a whole lot worse. That giant whoosh you'll hear is the sound of somewhere between $50 billion and $125 billion in losses getting flushed down the toilet by the end of 2008. And that's a good thing. This drastic medicine is the only remedy that would put the financial markets on a relatively quick path to health. Anything else promises to stretch this crisis out for years and years and keep the U.S. economy grinding along in low gear.