Well, today torrential rain is falling, the dikes are giving way, and everyone is getting very nervous â homeowners and those that have been peddling insurance. The authorities maintain a brave face. The speculators always planned on going to the reinsurance market when the heavy rains began to fall, but that market now has a deluge of buyers and no willing writers of flood protection. The flood insurance market is âdislocated,â with players basically stuck with the exposure they have written. Various parties are all the sudden very interested in the financial wherewithal of the cadre of marketplace participants (counterparties). The âconservativeâ bankers that lent against the homes on the river are in a panic and wonât be financing anymore riverfront building. Confidence in the marketplace is waning rapidly, which only exacerbates the rush to dump exposure to a potential flood. With the flood insurance market in taters, the building boom is doomed.
The closer the scrutiny, the more apparent that, in the event of a flood, there is going to be a very serious problem â economic and financial. The bottom line is that incredible amounts of inadvisable building (ârisk creationâ) have occurred over the past few years, and there is nothing that can be done to reduce risk at this point. Unfortunately, the insurance âindustryâ has little in the way of the necessary financial resources in the event of a flood, and there is little that can be done about this either. Itâs a severe structural problem â both for the financial system and the real economy. At the same time, the local authorities have continued to throw additional sandbags on top of fragile levees, with no one wanting to ponder the dire consequences if this frail structure gives way. They say everything is fine, as it always has been. The nervous homeowners are somewhat comforted, but those in the insurance market know otherwise. They are left to pray that it stops raining.
http://www.prudentbear.com/archive_...gory=Credit+Bubble+Bulletin&content_idx=13702
The closer the scrutiny, the more apparent that, in the event of a flood, there is going to be a very serious problem â economic and financial. The bottom line is that incredible amounts of inadvisable building (ârisk creationâ) have occurred over the past few years, and there is nothing that can be done to reduce risk at this point. Unfortunately, the insurance âindustryâ has little in the way of the necessary financial resources in the event of a flood, and there is little that can be done about this either. Itâs a severe structural problem â both for the financial system and the real economy. At the same time, the local authorities have continued to throw additional sandbags on top of fragile levees, with no one wanting to ponder the dire consequences if this frail structure gives way. They say everything is fine, as it always has been. The nervous homeowners are somewhat comforted, but those in the insurance market know otherwise. They are left to pray that it stops raining.
http://www.prudentbear.com/archive_...gory=Credit+Bubble+Bulletin&content_idx=13702
