Are We Heading for a Dangerous Go-Round in the Credit Markets?

Until this past year, many in the mainstream media seemed to think that the stock market was the only true barometer of which way the financial winds were blowing.

In contrast, the fixed-income market, despite its much larger size and its absolutely critical role in greasing the wheels of a credit-dependent economy, was often ignored, unless there was a big move in yields in response to unexpected economic data or the Fed had stepped up the pace of its monetary interventions.

However, it has been the credit markets that have correctly anticipated and delineated the tsunami of financial destruction that has reverberated throughout the financial system and the economy.

Based on the following report from David Gaffen at the Wall Street Journal's MarketBeat blog, "Write-Downs, Right Down to the Ground," it looks like the coupon-clipping types are calling for another dangerous go-round - like we saw a few months ago - in the period ahead.

Comments

[Ishortyou]

In respect to AMBAC and MBIA, they need to keep and save all the cash possible including stop paying dividends, deleverage AGGRESSIVELY from all their risky liabilities specially those CDS-CDO's, RMBS-ABS of uncertain value, in order to remediate their book values, once their book values are sound they need to reinstate their triple A rating again to write new low risk public bond insurance business. They can also open or extend a line of credit to make sure to continue operations and dissipate doubts. This will also prevent further downgrades from rating agencies.

They are already doing these, so it will take some time to deleverage their books from uncertainties and rewrite new business again. This coming back will be the best advertisement to recruit new clients.