One can see the same effect when the S&P drops a stock from the 500 index. All the index funds sell to keep their portfolio balanced causing a momentary shift in price. It would seem that the "smart money" is mostly governed by a herd mentality.
Even with a lower ability for the monoline insurers to cover their obligations this does not mean they have no ability to do so. If a bond defaults there may be some residual value and the insurer need only cover the difference.
For the case of municipal bonds I suspect that the US federal government will have to intervene in some fashion since no one can afford to see this sector disrupted. If Northern Rock can get bailed out by the UK central bank then one can expect something similar will happen in other circumstances.
Unfortunately clear thinking and panic don't go hand in hand... Policies not Politics ---- Daily Landscape
P & I Clubs
for some time.
A "Guarantee Society" is what I call it. A mutual guarantee, backed by provisions into a Default Fund, and managed by a service provider partner.
Not difficult: and disintermediating the current model.. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
