Saturday, February 23, 2008

Still the Minors

Whether or not Ambac or MBIA remain AAA or AA, they still have huge sub-prime exposure that can't be easily corrected with a simple line of credit. It's a joke that the market rallied on news that's been out there for 6 weeks. Ambac has already been downgraded and MBIA is headed there. These banks don't have the capital to spare on their already thin liquidity and bolstering Ambac to do so is a sham.

Why aren't we paying attention to the other developing crises at hand like student loan defaults, retailers going bankrupt every week (bye bye Sharper Image), and even preferred customers at investment banks being told they can't withdraw their own money from revolving auctions because these banks would lose too much capital? Citibank has already done this to their own hedge fund customers. The influx of sovereign wealth doesn't mean savior capital, it means greedy capital misplaced.

Muni auctions continue to fail at all-time highs. Even the Patriots are paying 13%-20% on their revolving bond, even though I'm pretty sure Bob Kraft and Cheese is a good credit risk. More and more inflation becomes a significant variable, and the simplistic argument that an economic slowdown means an inflationary slowdown is falsely reasoned. Historically, that has not proven to be the case, but Bernanke, leaning on his degrees, insists it is so. Furthermore, he thinks that the fed will simply reverse rates in a rapid fashion once the economy kicks in and stop inflation in its tracks! Too bad 50% of Americans will be in some sort of delinquency at that point with no usable credit and a negatively amortized home. But let's cheer an Ambac rescue, a company that strayed from its business model to risk $700 billion dollars in loans for our local governments and municipalities for their own gain.

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