A New Twist in the Wall Street Panic


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.”

DOES IT FEEL LIKE POLITICS IS AT A BREAKING POINT?

Headshot of Editor in Chief of Mother Jones, Clara Jeffery

It sure feels that way to me, and here at Mother Jones, we’ve been thinking a lot about what journalism needs to do differently, and how we can have the biggest impact.

We kept coming back to one word: corruption. Democracy and the rule of law being undermined by those with wealth and power for their own gain. So we're launching an ambitious Mother Jones Corruption Project to do deep, time-intensive reporting on systemic corruption, and asking the MoJo community to help crowdfund it.

We aim to hire, build a team, and give them the time and space needed to understand how we got here and how we might get out. We want to dig into the forces and decisions that have allowed massive conflicts of interest, influence peddling, and win-at-all-costs politics to flourish.

It's unlike anything we've done, and we have seed funding to get started, but we're looking to raise $500,000 from readers by July when we'll be making key budgeting decisions—and the more resources we have by then, the deeper we can dig. If our plan sounds good to you, please help kickstart it with a tax-deductible donation today.

Thanks for reading—whether or not you can pitch in today, or ever, I'm glad you're with us.

Signed by Clara Jeffery

Clara Jeffery, Editor-in-Chief

We Recommend

Latest

Sign up for our newsletters

Subscribe and we'll send Mother Jones straight to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate

Share your feedback: We’re planning to launch a new version of the comments section. Help us test it.