A New Twist in the Wall Street Panic

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There’s another disaster just over the horizon in the panicked financial markets. It concerns monoline insurance companies, which guarantee bonds for municipalities. (In other words, they will pay interest on the bonds if towns or cities default.) At the turn of this century, these companies expanded into providing insurance for certain other types of debt instruments, including CDOs (collateralized debt obligations), which can include subprime mortgages.

“Of the $2.4-trillion worth of insurance coverage these companies provide, approximately $125-billion is tied to the faltering home market, according to industry estimates,” reports the Globe and Mail. Since the big banks including Citigroup and Merrill Lynch try to shield themselves against subprime exposure through this type of insurance, the financial community is suddenly beginning to think monolines could turn out to be time bombs. As it stands, the banks themselves have written down $100 billion tied to CDOs. Under this kind of pressure, can the monolines hold up? Financial credit analyst Nigel Myer told the paper that even yesterday’s rate cut by the Federal Reserve won’t “get us out of the mortgage mess” or “solve the monoline problem.” And earlier this week, Jamie Dimon, JPMorgan Chase’s chief executive, told the Financial Times: “If one of these entities doesn’t make it…the secondary effect…I think could be pretty terrible.”

The subprime suck will have an increasing effect on these debt instruments. The FT ask: “What, for instance, happens to all the outstanding debt the monolines have insured—totaling over $1,000 billion? The majority of it is not subprime but humdrum bonds issued by municipalities, for instance, to fund schools and hospitals and roads. There is much at stake, but so far policymakers and Wall Street bankers—who have their own interests in ensuring the monolines do not go under—have not acted.”

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SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

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