Martin Vander Weyer on the next thing to cause heartburn in the financial markets.
The current market crisis sometimes feels like a Scrabble championship between financial pundits, in which most of us hesitate to challenge dubious words and strange jumbles of letters for fear of showing ignorance. First came ‘subprime’, which we learned to define as a category of mortgage borrowers so uncreditworthy they cannot even afford the hyphen the Spectator’s learned sub-editors would prefer to insert between the ‘sub’ and the ‘prime’. Then came a rash of acronyms encapsulating both the science of subprime lending and the alchemy of securitisation by which its poison has been spread around the world.
‘Nina’, for example, refers to ‘No Income No Asset’ mortgages granted without any financial information about the borrower except possibly his own undocumented assertion that he actually has a job with a salary. ‘Ninja’ is an even more exciting lending proposition: it stands for ‘No Income No Job No Asset’. And a Siv (as in ‘seaworthy as a…’) turns out to be a ‘structured investment vehicle’ which borrowed short in order to invest long in paper backed by bundles of Ninas and Ninjas.
So it goes on. Now we have ‘Federline’ – oh no, sorry, that’s Kevin, the chap who had the misfortune to father Britney Spears’s children – and ‘Monoline’. The latter really does notch up a big score in our Scrabble game: it refers to a group of US insurance companies that have operated since the early 1970s in such a trouble-free way until recently that most of us were unaware of their existence. Their role was to provide guarantees for municipal bonds – and to pursue no other line of business, hence the name. By purchasing a guarantee from a monoline such as Ambac Financial or MBIA, US state, city or county borrowers were able to obtain Triple-A ratings for their bonds, and therefore pay the lowest coupon, or interest rate, available in the market.

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