“Mediocre writers borrow; great writers steal.“ 

– T. S. Eliot

Posted anything worth stealing, David?

Faithful readers know I often draw on the Economist or the Wall Street Journal – with full attribution, to be sure! – for stories that form the kernel of these essays.  Judging from two recent pieces, the peeping is returned:

I spy with my little eye … David’s blog post

Case 1: Wall Street Journal editorial, April 17, 2009

The muni-bond performance record is also mostly the history of uninsured bonds. But the very existence of insurance can change the behavior of the policyholder or beneficiary — watch Barbara Stanwyck and Fred MacMurray in the 1944 classic “Double Indemnity.”

You peeping at my posts?

If a state or locality knows someone else will make bondholders whole, they are far more likely to default than an uninsured issuer would be.

AHI blog post December 8, 2008: Unlicensed insurance, credit default swaps:

 “I bet I’ll die soon.”

“We bet you’ll live a long time.”

– The essential bargain in life insurance

“I’ll take that bet.”

When you buy life insurance, you’re selling a risk (that you’ll die) and the insurer is buying that risk.  You’re paying the insurer to buy it.  

I who control my lifespan bet I will die, and you who have no say in it bet I won’t.  Talk about agency risk!

Because of its perverse incentives, I’ve always found the profession on insurance among the most curious financial products humanity’s ever invented.  The insurance-craving-murderous-spouse has been a staple of noir fiction ever since Fred MacMurray in 1944’s Double Indemnity (even the title screams insurance!) and smooth Ray Milland in 1954’s Dial M for Murder.

Dial M for money?

Case 2: The Economist, April 8, 2009

There are still plenty of shadows looming over the stockmarket

Illustration by S. Kambayashi

Always look on the bright side of life. Equity investors must have been humming the Monty Python classic last month. In the 14 trading days to March 27th, the S&P 500 index jumped 21%, the steepest rally since 1938.

But while stockmarkets were celebrating, the corporate-bond market saw 35 defaults, the largest number of non-payers in a single month since the Depression, according to Moody’s. The default rate is now 7%, up from 1.5% a year ago, and the rating agency predicts that it will reach 14.6% by the fourth quarter.

Recap Advisors, State of the Market 9, The Bungee Market, June 19, 2008

Rebound is instability too

Although it doesn’t feel that way right now (June), when the history of the Great Risk Repricing of 2008 is written, March 17 – when the Fed and Treasury permanently reshaped the capital markets – will be seen as the day the US residential market bottomed. Even so, rebound is not equilibrium. Some asset clusters bounce sooner, some bounce higher, some never bounce at all. Psychologically, months and years will pass before we all lose that queasy feeling from being buffeted by events.

A falling market only looks like bungee jumping after it’s bottomed, and even during a rebound, you’re flying upside down.

Going up can be as disorienting as going down

Ah well, that’s what the Web is for, isn’t it? J

What’s he going to post next?

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