A Safe Harbor In the Storm

These same insurers also guarantee subprime mortgage securities. Ambac Financial, MBIA and Security Capital, for example, face potential losses large enough to cost them their Triple-A safety ratings. In that case, the munis they insure would lose market value, too.

Some institutional investors have been dumping insured munis. That makes them unusually cheap, "so we'd be buyers now," says John Miller, chief investment officer of Nuveen Investments. MBIA got a capital infusion last week that shored up its position. Insured 30-year munis are yielding up to 4.9 percent tax-free to residents of the issuing state. That's more than you'd net from comparable taxable Treasuries. Ten-year munis are at 4.15 percent.

Stocks are another matter. If we're in a recession, they'll drop some more. If not, they'll catch hold and run up. The craziness reminds you that safety is part of investing, too.

Reporter Associate: Temma Ehrenfeld

© 2007