More ominously, investors in the credit-default swap market, where insurance against debt defaults is bought and sold, are signaling rising worries of financial distress for some big banks and insurers. The cost to buy insurance to protect against default on debt issued by Merrill Lynch & Co., Countrywide Financial Corp., Citigroup Inc., MBIA Inc. and others is soaring even as other concerns that nagged at the credit market at the end of the year recede.
Such protection is less expensive for debt issued by the troubled nation of Pakistan than it is for debt issued by MBIA or Countrywide. This, in turn, is raising questions about the health of some of these financial institutions as counterparties in big transactions.
Let's think about that for a minute. Pakistan has recently had a major political figure killed. They have been put under Martial law. Part of their country is having extreme political problems. And yet it's cheaper to buy protection for their debt than it is for a US mortgage issuer.
That's a pretty bad development for a US issuer.