Saturday, January 26, 2008

Bond insurance

Bond insurance, like its larger credit derivatives sibling, is actually an accounting trick designed to help the financial markets portray all the worthless securities they are buying, selling and holding as having value. When you think about it, the whole concept of such insurance goes out the door in a systemic crisis, since both the instruments being insured and the institutions providing the insurance are part of the same system, and when the system goes, it all goes down together.

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