Bonds are at the heart of the credit chaos gripping the world right now. Bonds are a major source of grief to cities and school districts which suddenly find themselves on the hook for guarantees they never fully realized they made, for example. Chares Duhigg and Carter Dougherty, "From Midwest to M.T.A., Pain From Global Gamble" p. 1, col. 1 (New York Times Nat'l Ed., Sunday, November 2, 2008).
Bond Insurance Companies were on solid footing financially when they stuck to insuring bonds. Once they left their only known area of expertise and ventured for example into the land of subprime mortgage securitization, they began losing their Credit Ratings. Without their Credit Ratings, they lost the ability to insure bonds. Without their ability to insure bonds, they are apparently headed for bankruptcy -- except that some Bond Insurance Companies are lining up for a Federal handout, if they can get it. Peter Whoriskey, David Cho and Zachary A. Goldfarb, "Treasury, FDIC Near Deal on Mortgage Aid" (Washington Post.com, Thursday, October 30, 2008).
Finally, the current Chair of the Federal Reserve has recently told people attendng a symposium at U. Cal.-Berkeley on mortgages and the economy, that it may be worth the while of the Federal Government to consider making a new Federal agency, one to issue Bond Insurance in connection with mortgage financing. David Stout, "Bernanke Sees Role For U.S. in Homes" p. B3, col. 6 (New York Times Nat'l Ed., Business Day Section, Saturday, November 1, 2008), published online with the headline, "Bernanke Says Mortgage System Needs Safeguards"..
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