If catastrophe reinsurance is rated according to a sound evaluation of the likelihood of the catastrophe occurring, then it seems like it would be a huge step forward in disaster management.

Imagine a scenario in which insuring coastal America against flood and storm damage becomes more and more difficult as catastrophe bond ratings plummet into the junk range — the only way to reverse the trend is through massive preventative engineering, adoption of strict flood-minded building standards, and a long-term decline in atmospheric greenhouse gases. If nothing else gets Americans to care about something, hitting them in their pocketbooks does it every time.

(That the same principle applies throughout the world goes without saying, but the rest of the industrialized world and in particular Europe seems to already be embracing the concept.)

They are based on real money, but when the stock market goes down nobody is expected to pay out $590 Billion dollars. The money simply disappears into the ether - it's a paper loss. If Microsoft stock goes up 10%, then Bill Gates gets 10% richer, but if he tried to cash in all of that wealth over a short period the stock value would fall and he would end up poorer. But when an earthquake happens, people expect to receive real money, not pieces of paper, and they expect to get it quickly.

Maybe I'm missing something, but it seems to me that the people who are promoting this idea had better be very careful. At some point cash is going to be due. You can't just make money appear when a disaster happens.

May you live in interesting times.........

My family often visited a farm in what is a hidden

valley. A small pocket of a few hundred people nearly

cut off from main roads and electricity. We were warmed by

wood stoves, and read by oil lamps. I realize now, that I

lived, briefly, in the late 1800's (or 17, or even 1600's).

That experience will never fade. Among stacks of books

on economics, philosophy, and all the theories and histories

we accumulate, memories of those months of vacation visits

are like a huge monument: a formidable logic and emotional

refutation (or affirmation), of all the books. Anyone who lived

or lives in that world, cannot fear hunger or cold as they are feared

in war, in revolutions, or in financial collapse. But life is far more

complicated than fresh cream on wild strawberries after baked

fresh salmon, or snuggling in buffalo robes by the fireplace at Christmas.

That is why they had to write the books, and why we study them,

and rewrite them.

Economic, financial, business 'models' (theories) are a phoenix

which ascends from the ashes of the previous collapse. The

'New Deal' emerged this way, and has slowly been abandoned,

margainalized, administratively starved, refuted, legislated into

oblivion. It becomes an interesting PR problem to read of whole

sectors of the economy dying like polluted lakes, the news of

which is crafted to avoid any semblance to a 'Depression'. The world

has wobbled, stabilized, wobbled again........ then along came

George... It is interesting to watch the ('we create our own reality'),

Bush admin realize that they dont have a clue as to what is happening

or what to do about it. As Jimmy said: " this is the moral equivalent of

war..." ---But Jimmy, we have already flunked the Real one. George

is up there spinning his legs in midair like the dollar speculator, who

suddenly realizes that nothing but air is holding it up, as in Paul Krugman's

description of Wyle Coyote. This is good teaching, in that the moral

equivalent and logic required is about the level of grade 6: Mary loaned

Billy 8 lollipops, (just add 12 or more zeros), Billy is broke, so just enter

8 zillion zillion zillion lollipops in the Red column,then hide the leger in the

woodshed. Goldman Sachs, Citi, do the same.....

ARGONNE

Think of banks. They have reserve requirements that are 30%. Think of life insurance. Your probability of dying tomorrow is pretty well known. Think of a lottery. The ticket is cheap the reward is huge the odds are absurd. A run on the banks scenario is fairly unlikely.

Only problem with the risk spread management solution is the capital markets haven't much capital, just inflated assets. If Wall St weres to sell as little as 50bn of their paper assets they might start a death spiral in the markets. Have you noticed that in this stock market bubble there are no pullbacks, that's because the market cannot afford them, and B Ben knows it, which is why he paniced in Aug, and did a 50/50 full gainer into the markets (cess)pool of liquidity. In the event of a major cat, the insurer defaults, the reinsurer defaults and the government picks up the tab. That means you the taxpayer, but not under Bush, where the costs are simply added onto the deficit, and the markets continue to surge ahead. so not only do we offload the real risk on the taxpayers, but we offload them on unborn taxpayers, which is why the bush people support the right to life, for a future generation of indentured servants.

And been debunked.

apologies.

Money confuses me. I like the saying:

'A true rich man/women is benevolent and so generous.

Pockets are not sowed into a wealthy person's cloak.'

I think I am jealous because holes are in my pocket?

interesting read.

Wow. I finished Naomi Klein's book "The Shock Doctrine - The Rise of Disaster Capitalism" just a few weeks ago, and here it is in action.

I swear, Wall Street will bet on betting.

The shock is coming. We had better be prepared.

This is Lloyd's of London. Brokered shared risk pools, basically an exchange for insurance risk pools just like a stock exchange. Except they're bundling it now and packaging it so that anyone can get in on the action.

Keep in mind that it is still 'risk' aka the probability that a series of events will occur, more or less. If it was certainty wouldn't it be a strip or an annunity?

In fact what would be wrong in converting all the CDO's into a straight exchange in its own right? You could marginalize the purchases and spread the risk even further, plus you could leverage price fluctuations and sell a loss short. You could make money from losing money. Seems like a proposition worth considering.