Bond Market Falls On AIG News
The market did its usual tricks starting much lower, and ending higher, up 58 points. No real news moved the market today.
The bond market fell in interest rates today because of the AIG news (see news below).
Oil continued its climb on supply worries in
Currencies moved sideways today as the market traders battle it out in the current trading range. We’ll just have to wait to see what shakes out of this titanic battle.
In the news today….
AIG is one of the world’s larger and more sophisticated insurance companies. They said today that they were trying to figure out how much of their sub-prime mortgage investments they should write off.
AIG took a big risk in buying those sub-prime backed securities. Now it is obvious that they didn’t understand what they were buying. In my opinion, an insurance company shouldn’t be taking big risks with people’s investments (life insurance, pensions, etc.) AIG has clearly demonstrated their very poor judgment in this area. For those of you who are considering purchasing something from an insurance company, I recommend you ask them how exposed they were to the sub-prime fiasco. If they say they were exposed at all, I recommend running as fast as your sneakers allow.
Part 2 of this story is that when a sub-prime loan is securitized, and it is insured by a bond insurer (like MBIA – see past stories) the security takes on the “rating” of the bond insurer – not the “rating” of the security itself. This appears to be the problem that AIG fell into. In other words, they didn’t really understand how bond ratings worked – not a very pretty picture for a “sophisticated” company.
Here are today’s Numbers:
Dow Jones 30 Industrial – 12,240 (Up 58 points)
10 Year Treasury Bond – 3.62% (Down 0.04%)
Euro – $1.4522
Gold – $927 (Up $4)
Oil – $93.59 (Up $1.82)
Gasoline – $2.40 (Up $0.04)