Bond insurers. Beginning of the end

Privately held FGIC, the third largest bond insurer, has asked the NY Dept. of Insurance to be split in half. One company would get their still safe municipal bonds, the other would be the repository of the toxic financial sludge. This is a desperation move to get the muni bond market moving again and other bond insurers will no doubt be doing the same soon.

This affects all of us directly. With the muni bond market seized up, municipalities are paying more in interest on their bonds. As an example, The Port Authority of NY just had rates go from 4.3% to 20% on existing bonds, thus they are forced to pay 15.7 percentage points more until the markets return to normal and buyers appear again.