ABSTRACT
We have already seen how involvement in structured finance brought AIG to
the edge of failure. Here we look at another disastrous entanglement: the
activities of certain insurers – the monolines – in structured finance. These
insurers used to operate in a relatively quiet backwater of the capital markets,
municipal finance. This chapter discusses the origins of municipal finance, the
growth of the monolines, their diversification into structured finance, and its
consequences.
