"'We are Bailout Nation.'"
William A. Fleckenstein, quoted by Gretchen Morgenson in "Rescue Me: A Fed Bailout Crosses a Line" p. 1, col. 1 "Sunday Business" Section (New York Times Nat'l Ed., Sunday, March 16, 2008).
For those who reflect that Insurance Policies may not become involved in the current credit crisis, note that the reported average default rate on "so-called Alt-A mortgages", meaning loans of that type that are either in foreclosure or are delinquent by more than 60 days, is 8.4%. Reportedly as of February, 2008, the default rate on Alt-A mortgages is 15%.
Parenthetically, an "Alt-A mortgage" is somewhere between a subprime rating and rock solid. Short for "Alternative-A," Alt-A mortgagors (borrowers) "typically had good credit scores but lacked the documentation to lift them into the prime category." Nelson D. Schwartz, "Market Maker/Wait, Weren't These the Safer Bets?" p. 2, col. 4 "Sunday Business" Section (New York Times Nat'l Ed., Sunday, March 16, 2008).
"In addition, institutions that had bought credit default swaps from Bear Stearns, insurance policies that protect against corporate bond defaults, were scrambling to undo these trades as the firm's ability to pay the claims looked dicier." Morgenson, supra.
This post ends now with these words written at the beginning of Gretchen Morgenson's insightful column, supra:
What are the consequences of a world in which regulators rescue even the financial institutions whose recklessness and greed helped create the titanic credit mess we are in? Will the consequences be an even weaker currency, rampant inflation, a continuation of the slow bleed that we have witnessed at banks and brokerage firms for the past year?
Or all of the above?
Stick around, because we'll soon find out. And it's not going to be pretty.
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