Finally the US gov. has proven to bailout every sucker. Even GM and Ford... Well... what future business will there be for bondinsurers if everything is being solved by government intervention. What's the solution for this story? Will the gov. finance an out of business bond insurer with billions of dollars? Haven't heard of any being in the universe, being more stupid than the US gov.
The counterparty risk in this system is a real problem. One goes and they all go. We cant save them all. scary stuff
it's to prevent a dominioes effect in the financial system. gov't has to insure trust in banks,brokers/IB, and insurers. nobody will buy insurance if they think the insurance company will go bankrupt.
Let me rephrase: If everything is being bailed out by the gov nobody is going to pay the premia for the risk of default. This causes defaults on monoliners/bond insurers (the gov. is taking their business). So in the future bondinsurers will leave the market and the only default insurer is the gov. Hello socialism.
Here's where I get lost. When someone invests in a company that goes out of business, they lose their investment. Shouldn't, then, the counterparty that agreed to do business with the institution lose their money if the institution goes belly up?
The bailouts are serving to exacerbate the problems and increase volatility, they are not going to help much of anything in the long run. It's a "do something" mentality that has overtaken an awful lot of people, they feel that they must "do something" and they do so whether they know what they are doing or not....