Bond Insurers Downgraded and No One Paying Attention

 In news that has not been widely reported, many of the bond insurers have had their ratings downgraded today.  ACA Financial's rating was even lowered to junk status. 

What does this mean?  It's like hearing that the FDIC doesn't have the money to cover your deposits.  Many of you have purchased bonds, especially municipal bonds, on the expectation that they are insured.  Well, the companies that insure these bonds are now having significant problems.  The AP article reporting on it states:

The International Herald Tribune writes that:

The S&P move left credit market investors with little comfort about the safety of mortgage securities, particularly those linked to home loans made to people with blemished, or subprime, credit. Many investors were counting on bond insurance to protect them from losses, and others have used credit protection contracts to bet that the housing market will weaken further.

If property taxes drop and the economy goes into a recession, some municipalties may not be able to cover their bond payments.  And now, the companies that were supposed to insure those bonds are looking shaky.

Now is a good time to review your bond portfolio.

Sam Cass
Sam Cass: Sam Cass, MBA, JD, University of Texas at Austin. Always a fan of Leonardo Da Vinci.

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