Risk and Return

Bad news for the monolines. FGIC just got downgraded today to AA. That pretty much puts them out of the business of insuring municipal bonds.

NYS Commissioner of Insurance has suggested splitting the Muni bond business from the rest of the insurers. FGIC seems to now think that isn’t a bad idea. Of course, since Elliot Spitzer has told them all to find sufficient capital in the next three to five days, they may have little choice.

Barry Ritholtz thinks this pretty much will lead to ending them as viable organizations:

What’s left is can best be described as a poorly run, derivative hedge fund led by people who have no business running a hedge fund of any sort, much less one of the poorly run derivative variety. But the fact that the NYS insurance commissioner is suggesting this should tell you that this has reached a level of government involvement that cannot bode well for our friends at ABK, MBIA and FGIC

Those vaunted rate cuts which Risk and Return was skeptical would be the driving force behind our economic path?

The Federal Reserve’s interest-rate cuts last month have failed to lower borrowing costs for many companies and households, increasing the chance of further reductions from the central bank.

Companies are paying more to borrow now than before the Fed reduced its benchmark rate by 1.25 percentage point over nine days in January, based on data compiled by Merrill Lynch & Co. Rates on so-called jumbo mortgages, those above $417,000, have increased in the past month, making it tougher to sell properties and risking further price declines.

Barry again:

Bill King noted a similar story on ABC News:

[Monday] night, the lead story on ABC evening news (World News) was ‘though the Fed has cut interest rates sharply in recent weeks, banks and credit card companies are hiking rates on consumers.’

Chase, Bank One and Bank of American were cited. The ABC News reporter said banks are hiking consumer interest rates and fees to cover losses on their crappy paper.

Yes, it’s that blatant and transparent.

Lovely. We get all of the wonderful inflationary effects of rate cuts — but none of the economic benefits.

Can you say “The Fed is pushing on a string?”
(Very good children. I knew you could)

True, though my own opinion is the Fed never has as much strength to push as we think they do. Way too much time is spent on what the Fed is doing. Granted, even though I know better, I do it as well.

While I keep sending you to Barry today, you might as well let him educate you on why the retail sales number that cheered some for a moment on Wall Street are actually looking pretty disastrous. Start here, finish there.

Hat tip: As always, some of this is from Abnormal Returns. Even if not, go there.

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Technorati Tags Economics, economy, Federal Reserve, Inflation, monetary policy, monoline insurers, retail sales

Tags: Economics, economy, Federal Reserve, Inflation, monetary policy, monoline insurers, retail sales

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