by Martin D. Weiss, Ph.D.
We were the first to warn you about the most im****tant single
financial event of 2008 -- the collapse of bond insurers.
At the time, few people understood it. Fewer still believed it was
going to happen.
But now it's here:
* On Wednesday of last week, Fitch slashed FGIC's financial strength
rating by two notches, from "AAA" to "AA" ... undermining the bond
insurer's chances of winning new business ... and automatically
reducing the value of hundreds of billions of dollars worth of bonds
that it insures.
* Also on Wednesday, Standard & Poor's announced it's on the verge of
sla****ng ratings on more than $500 billion in investments -- 6,389
cl***** of bonds in all -- including nearly half of all mortgage-backed
securities sold in 2006 and the first half of 2007.
The list of bonds to be downgraded is 238 pages long.
It could impact every major investment bank in the country including
Citigroup, Lehman Brothers, Bear Stearns, and Merrill Lynch.
And it could inflict serious pain. According to Standard & Poor's
itself, the downgrades would trigger a staggering $265 billion in
losses at financial institutions, or nearly three times the $90
billion in write-downs we've seen so far.
* Then, on Thursday, bond insurer MBIA re****ted new losses of $3.5
billion -- on top of the $1.9 billion it lost in 2007. At the same
time, Oppenheimer warned that banks could take up to $70 billion in
additional losses because of the faltering bond insurers. Finally ...
* On Friday, a group of large banks scrambled to find a way to shore
up Ambac's finances. But they reached no conclusion and had no firm
timeline for cutting a deal. Nor did they know how they could possibly
come up with enough money to rescue the other big bond insurers in
trouble such as MBIA and FGIC.
Bottom line: The dominos are falling.
Martin
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