Where is the San Andreas Fault of the market? All eyes on the bond insurers guaranteeing CDO's (collateralized debt obligations). FGIC corp lost love on St. Valetine's Day, losing their valuable AAA bond insurance rating yesterday. FGIC the 4th bond insurer of the United States, fell $4 billion short of the reserve necessary to retain their credit rating.
The governor of NY flew to DC today to testify before Congress that the effect of the bond insurers getting their credit rating downgraded would be catastrophic to the economy. Buffett has offered buy their non-CDO business to help them raise capital; unfortunately, this would seal their doom, leaving them irrevocably connected with the CDO business which is garbage.
The indices are gently declining now. When (not if) will the government intervene to prevent the downgrades - and how will that move the markets?
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