Friday, January 25, 2008

a deal you can't refuse

Interesting explanation from Steven Pearlstein about the dilemma facing some big finance companies. Seems they bought $66 billion in bonds from a company called ACA Financial Guaranty, a company that insures municipal bonds. But ACA, after going heavily into buying and repackaging loans (including mortgages) only has $425 million in capital - they can't even pay a penny on the dollar.

And then mortgages tanked and ACA is essentially insolvent. And the companies that rely on it can't afford to let it collapse so they get to invest even more money in it - a deal they can't refuse.

And such are the ways of high finance.



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