First there was the Warrent Buffet rumor. Warrent Buffet was going to buy the munies. Never mind that munis are the safe investments (atleast so far). Never mind that there was no solution for the subprime CDOs, which were the problem in first place. It's almost like Daimler-Chrysler selling of the Mercedes division and keeping Chrysler!
Then there were the rumors that the banks will bailout Ambac. Again, the news lifted the stock market. If recapitalizing by $2-3 billion would have fixed the problem, why didn't the banks do this earlier?
Then the Rating Agencies hold AAA ratings on the insurers. So the stocks go up again. Don't worry about the fact that the ratings agencies have no credibility. They are giving AAA ratings to companies that pay 14% in interest! But all that does not matter and the markets go up.
Yesterday(March 4, 2008), just as stock market was about hit it's lows, we get the rumors (exactly at 3:00 pm) about Ambac getting bailout from the banks. Again, do not worry that Dubai International Capital is saying that Citi itself needs more capita! Blind leading the blind.
Is Ambac worth more in this state to the stock market then it would be with an actual bailout! Whenever market needs a jolt, just bring out the rumor card.
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