That is the wild card in the market right now. Cramer pitched an idea today and stated that he thought the govt should take MBIA and Ambac over, dispose of the assets selling the good ones to Buffett, and close the operations down. He said it was not a matter of….IF….they fail, but rather…When….they fail. The govt could then guarentee the $500 Bil of bad paper at .50 on the dollar with a tax payer cost of $250 Bil. He said the Dow would go up 2000 pts if this was enacted. Cramer has some extremely high level players feeding him this info so I would not dismiss this. Here is a post at Calculated Risk on the impact of the dissolution these companies
“The destruction of the bond insurers would likely bring write-downs at major banks and financial institutions that would put current write-downs to shame,” Tamara Kravec, an analyst at Banc of America Securities, wrote in a note Friday.”
This is turning into a very big story and is IMO the primary reason there has been no bounce…….NO BOUNCE…….in the stock market this week. If you are placing large bets shorting this market a large govt bailout of this type is your biggest risk, talk about a short squeeze. If such a bailout gets put in place the large players will know first long before it makes it across any newswire. Pay attention to the options of the financials. If you see heavy call activity start taking place cover any short position you have. On the other hand if these monolines go under you will see an equally large move down which may be the trigger for the govt to step in. I have a feeling it will be one or the other. This has the making of some extremely volitile swings in the market. It should be great for options trading as long as you are on the right side of the bet.
