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Tuesday, February 19, 2008

These Are Some Of The Consequences

Massachusetts May Raise Road Tolls Amid Subprime Woes (Update1): “Drivers on the Massachusetts Turnpike face higher tolls because the state is unable to sell bonds insured by a unit of troubled Ambac Financial Group Inc.

The Massachusetts Turnpike Authority, which oversees Boston's `Big Dig' highway tunnels, is spending an additional $300,000 a month on its bonds because investors won't buy $126.7 million in auction-rate securities backed by Ambac, state officials revealed today. Rising debt costs threaten to derail agency efforts to avoid raising tolls this year, officials said.

The authority is now unable to sell $126.7 million in Ambac-backed bonds after the insurer's credit rating fell because of subprime-related debt it guaranteed, LeBovidge said. Additionally, the market for auction-rate debt has been roiled by bankers' reluctance to stand behind those bonds, causing auctions to fail.

The delay costs the turnpike an additional $300,000 a month because the $126.7 million in bonds are tied to an interest-rate swap with UBS AG that began in January. Officials are trying to rework the arrangement with different variable-rate securities to match the terms of the swap contract.”

This is what happens in the ‘real’ world when the financial markets get some sand in their gears.

Credit crunches ALWAYS result in economic crunches.
Short strength. Rallies are to be faded.
Nuff said.

Notice how the S&P couldn’t get through 1370 this morning? (I mentioned that level in Bounce Time, Again this morning.) Pop and drop. That’s the smart money selling into strength on the open.

Related Posts:
The Monolines: Such A Slow Death
Ambac, Monoline Insurer’s: The End Game