Alright. Yesterday felt good to take a break from writing about all the disasters out there in our business. But as Michael Corleone said in the otherwise unmentionable Godfather III (I will do penance for bringing up III as I know it is heresy), “Just when I thought I was out…..they pulled me back in!” The ingenious plan being hatched to save the beleaguered monolines late yesterday was just too much to pass without some comment. I read about some rumblings earlier in the morning in the Financial Times and I just gave it the old hand wave, chuckled and moved on. Then it happened:
News Item: Banks, New York Regulator Meet on Bond Insurer Rescue!
Now, we here at Monkey Business have been saying this all along. The Street will do everything in its power to keep the fraud of the AAA monolines alive. Why, you should be asking? Forget all the munis these guys have guaranteed. I have a feeling if the ratings morons did their job, 99% of the munis would be AAA anyway. Hell, Moody’s all but admitted it last month! The problem here is all those credit default swaps the monolines have on with the Street on CDO paper. Where the hell do you think all those hedges came from to keep some firms from “being battered” by the housing credit meltdown? Because the monolines are AAA they don’t have to post initial margin. The have to mark to market, and pass mtm margin to the counterparties but it’s that initial margin that is supposed to absorb the hit to the counterparty “should there be a problem”. Well now there is a big fat problem and the second one of these guys can’t come up with the cash, its game over. This thing will spiral out of control faster than poop through a goose. The Banks will lose many billions. This plan is about as intelligent and transparent as “Super SIV”. I’m expecting Hank Paulson to come in and bless this thing at any moment. Anyway we had this nice exchange with Our Pal Fred:
Eric: UMMM, WHO ARE "THE BANKS" GOING TO GET THE CAPITAL FROM TO GIVE TO THE MONOLINES?
Our Pal Fred: The Treasury Dept. And they're gonna get it from drug dealers, and they're gonna get it from their custys who are stripping vacant houses for the copper plumbing.
Eric: That’s Good!....and not to be outdone...
Our Pal Fletch: And then we'll need to build more prisons reduce crime rate, to create more jobs, spend more on "infrastructure" so our candidate can win AND PUT MONEY IN THE CONSUMERS POCKET..FISCAL STIMULUS!