Bond Insurers Called 'Dead Men Walking'
by Travis Pantin
Wed, 16 Jan 2008 at 9:49 AM
According to economics blogger Yves Smith, the Municipal Bond Insurance Association and the American Municipal Bond Assurance Corp. are "dead men walking."
Mr. Smith writes that he recently gained possession of a report from an investor who is betting MBIA and Ambac stock will do poorly. "It is one scary and persuasive document," he writes.
The bottom line of the document is that there is practically no chance that MBIA and Ambac will survive, Mr. Smith writes: "Their liabilities are so far in excess of their capital that there is no hope, nada."
According to Mr. Smith, Wall Street should be much more anxious about this possibility than it seems to be. "The truly bizarre thing is that there is so much concern and focus on the imploding equity bases of the big banks and securities firms, and the tsuris of the bond insurers is treated as a sideshow," he writes. "Yet a crisis at MBIA and Ambac will feed into and amplify problems in Wall Street. Dollars spent rescuing the guarantors … will stem more damage than pumping a comparable amount of dough into faltering investment banks."
The report also analyzes how the recent trouble in the real estate market has affected the two bond insurers, and how they are endangered by other types of exposures, "particularly MBIA's incestuous relationship with its captive reinsurer, Channel Re," Mr. Smith writes.
According to Mr. Smith, the report concludes that it will take roughly $7 billion for each bond insurer to keep its top-level AAA credit rating. "And that was using end of third quarter levels for the loss estimates, which are now being surpassed by a wave of even greater writeoffs," Mr. Smith writes.
Losing their AAA ratings would be disastrous for MBIA and Ambac, casting doubt over the quality of the many billions of bonds that they guarantee.
Mr. Smith admits that the tone of the report is consistent with the author's short-selling of MBIA and Ambac stock, but he says he thinks that its reasoning still makes sense. "Mind you, I have read enough analyst and consultant reports so as not to be fooled easily (in fact, I sometimes get hired to vet them)," he writes.
Inspirational Presidents
Can the president lift up the economy by making people feel good about themselves and their future? "Certainly," blogger Mark Thompson writes on Publius Endures.
He backs up his claim with some historical evidence: "I think recent economic history would tend to back this up — there have, after all been 3 Presidents in the television era … who could arguably be described as inspirational: Kennedy, Reagan, and Clinton. Each of these three Presidents is associated with periods of sustained economic growth. Admittedly, this is not a large sample size, and correlation does not equate to causation. But it's something worth thinking about."
A George Mason professor of economics who blogs, Tyler Cowen, responds, writing, "GDP growth rates are statistically indistinguishable from a random walk. … Since the temperament of the politician seems to persist over time, you would think that patterns in GDP would be more predictable than they are. But they aren't."
Economics on the Web Homepage
|
Print
Send
RSS
