Government Here. Government There. Bond Insurers Up.

I missed this tidbit - wow, something must have really snapped in the Fed this last weekend; look at all these actions coming out in a big bunch - maybe those huge overseas drops finally got some people thinking. We talked about the trouble in bond insurers just last Friday, the so called Sword of Damocles hanging over our every move; but this has been an overhang issue since August.

Now we are hearing inklings Wilbur Ross is sniffing around and might acquire one, and the government is forcing the banks to provide capital to the bond insurers. Truly amazing times. I missed this entirely as I was focused on the Dodd bailout. I cannot keep track of all these bailouts at once!

• Big banks and brokers that are counterparties to bond insurers met with Eric Dinallo, New York's state insurance regulator, said David Neustadt, a spokesman for the agency. He declined to say what was discussed, but reiterated the regulator's goal of restoring stability and injecting more capital into the $2.3 trillion market.
• During afternoon trading, the Financial Times reported that Dinallo pressed the banks to provide $5 billion in immediate capital to support the bond insurers and to ultimately commit up to $15 billion. Neutstadt declined to comment on the report.
• Bond insurers have been under intense pressure amid mounting concerns that mortgage-related losses will undermine their business models. Fitch Ratings cut New York-based Ambac's (ABK) crucial AAA rating last week, and rival ratings agencies have warned they may have to do the same.
• The stakes remain high because bond insurers are so intertwined with the rest of the financial markets. The companies guarantee billions of dollars of complex mortgage-related securities held by some of the world's largest investment banks and back more than $1 trillion of muni bonds.
• Ambac "is in desperate need of $5 billion or more of capital or a guarantee from a very strong (backer) to preserve market confidence," said Egan-Jones Ratings, a rating agency that's paid by investors rather than issuers. "Some sophisticated investors claim that Ambac and MBIA (MBI) must be saved or the write-downs and margin postings will be debilitating to most investment and commercial banks."
• Wilbur Ross, highly successful as an investor in so-called distressed businesses, said on Tuesday that he wants to invest in some bond-insurance companies and could pick a candidate within the next week.

Well, while every free market idealist and moral hazard advocate must be keeling over, these are certainly (extraordinary) steps that will help to remove quite a few layers of uncertainty from the market. The stocks reflected this.

ABK +72%

MBI +33%

SCA +76%

ACAH +41%

Again... unprecedented times. And I never....ever... ever want to hear the blather from a free market advocate again - certainly when it comes to the US of A. It's always the mantra until the system spirals onto itself in a tsunami of greed and corruption. "We'll police ourselves" has worked wonders in both the mortgage and bond insurers (and rating agency) world. And now, no one is too big (or small) to fail. Because it will take the whole system with us.