Party risk Ralph Lauren Outlet UK general electric company Get used to hearing that phrase:Counterparty risk. You will be hearing a lot of it in the coming year.It’s one of the reasons i disagree with my Ralph Lauren UK Outlet friend doug kass about any bottom in financials. Consider this small ConCern:Given the enormous amount of hedging that was done by investment banks(Merrill(Mer), Morgan Stanley(Ms), JP Morgan(Jpm), Citi(C), etc. )If the monoline insurers fail, well, then you are no longer hedged.So while some people are arguing that the write downs are now over, i am not quite so sure. And that’s before we get to the issues of defaults which have yet to occur.These are problems in the near future, and they are likely to cause an ongoing set of dislocations.Hence, why i expect the financial sector bottom will be a long tedious process. But i digress.Back to the monolines and counterparty risk. The ambacs(Abk), MbiAs(Mbi), and FGICs(A Ge(Ge)/Blackrock(Blk)Company)Of the world used to have a nice little business going.They wrote insurance on bonds that cities, states and municipalities issued.It was”The vig”On getting a triple aaa rating, and the premium more than paid for itself in reduced borrowing costs.A lovely, low risk business, with little defaults and a steady revenue stream.At one point in time, ambac had the highest revenue per employee on the planet. (Click Ralph Lauren Bikini Sale to enlarge) 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 fat premiums without properly understanding the risk. Greater reward requires greater risk.This is such a simple formula, yet i find myself repeating it again and again.How anyone fails to understand it, quite frankly, is beyond my comprehension.These were once great businesses, and now, there is the increasing chance perhaps likelihood they will be zeros. Disclosure:A relative used to work at ambak, and now works at fgic.We don’t really discuss work, www.chipgold.co.uk and they were not consulted on anything in the commentary.