I probably should include this in my standard economics update, but Barry Ritholtz’s line (my title) is too good not to give top billing.

He is talking about something called “Counter-Party Risk“, which is the risk that an issuer might default on a payment or go into liquidation. Also known as counter party risk.

Basically, he is continuing his ongoing riff on what will happen if monoline insurers go belly up, as increasingly seems likely.

He expects there to be a lot more “down” there, as do I. There is a lot of leverage, out there. For an MBA, it’s called leverage, for the rest of us, it’s called “being in debt up to our eyeballs”.

In describing the monoliners, MR. Ritholtz is right:

That situation was obviously intolerable. So they brought in the financial engineers. Hey, we should be issuing insurance on Credit Default Swaps (CDS) — the premiums are much much bigger than boring old munis!

Any time you hear words to that effect, you know you are dealing with an idiot of the highest magnitude. Those are the equivalent to “Give me a match, I want to see if there is any gas in the tank.”

The monolines are not in trouble because Municipalities are defaulting on bond payments. (That’s waaaay in the future). The problem is they wrote insurance — taking in that fat premiums — without properly understanding the risk.

….

I’ve said it before, and I’ll repeat it again: To err is human, but it requires an MBA to create total clusterfu#@ . . .

My analogy, that like those people on American Idol whose friends have told them that they can sing. Is nowhere near as clear or as lyrical.