Bond Insurer Defaults - The Next Debacle?

[casey1167]

Nell, so basically what you are saying is you think the Federal Government should provide insurance on the Munis??

The end game to all these bailouts is a huge amount of money from the goverment, which can only be inflationary.....

[deejayoh]

[Nell Plotts]

[casey1167]

[deejayoh]

[Nell Plotts]

[TJ_98370]

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Jan. 30 (Bloomberg) -- Financial Guaranty Insurance Co., the world's fourth-largest bond insurer, lost its AAA credit rating at Fitch Ratings after missing a deadline to raise capital.

Financial Guaranty, a unit of New York-based FGIC Corp., was cut two levels to AA, New York-based Fitch said today in a statement. The company had been AAA since at least 1991. Moody's Investors Service and Standard & Poor's are also reevaluating their ratings.

The loss of the AAA stamp jeopardizes ratings on bonds Financial Guaranty insured and limits the company's ability to generate new business. FGIC, along with MBIA Inc. and Ambac Financial Group Inc., are paying a price for expanding beyond their traditional business of backing municipal bonds to guaranteeing debt linked to riskier subprime mortgages and home- equity loans, as well as collateralized debt obligations.... ..
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[TJ_98370]

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While the Federal Reserve tried to soothe Wall Street's nerves on Wednesday, a hedge fund manager frayed them by warning that two pillars of the financial markets might crumble.

Even as the Fed delivered another big cut in interest rates, William A. Ackman, a prominent money manager, fanned growing fears that the bond insurance industry might suffer crippling losses.

Mr. Ackman, who runs a New York hedge fund called Pershing Square and has bet against the insurers' shares, issued a report late in the afternoon predicting that two of the companies, MBIA and the Ambac Financial Group, might lose $24 billion on complex mortgage investments they have guaranteed. Such a hole might threaten their survival and touch off a chain reaction of losses at some of Wall Street's biggest banks, as well as raise borrowing costs for states and municipalities......
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[perfectfire]

[TJ_98370]

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Goldman Sachs' chief financial officer predicted today that bailing out US monoline insurers will prove "more complicated" than the 1998 rescue of Long-Term Capital Management, the notorious hedge fund that was saved from collapse by a multi-bank finance package.

David Viniar told a conference today: "It is likely that you will see some solutions to what's going on with the monolines."

A group of eight banks, including Britain's Barclays and Royal Bank of Scotland, are working with the New York Insurance Department, on a $15 billion bail-out plan for the monoline insurance industry.

Monoline insurers underwrite one type of debt i.e. bonds, against default. The combined industry insures $2.4 trillion worth of bonds and, after branching out to underwrite bonds containing sub-prime mortgage debt, these companies are now facing huge losses.......

......Last week, MBIA, the world's largest bond insurer, announced a $2.3 billion loss for the fourth quarter. William Ackman, of the Pershing Square hedge fund, calculated that the sub-prime crisis would eventually cost MBIA $11.6 billion.......
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[TJ_98370]

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Feb. 12 (Bloomberg) -- The risk of bond insurers MBIA Inc. and Ambac Financial Group Inc. defaulting rose after billionaire Warren Buffett offered to assume responsibility for $800 billion of municipal debt, excluding subprime-linked securities......

.....Buffett is attempting to take advantage of bond insurers as they seek to raise capital and avoid downgrades to their AAA credit ratings. Buffett's Berkshire Hathaway Inc. plans to insure municipal debt for 1.5 times the premium charged by the bond insurers to take on the guarantee and will put up $5 billion of capital, he said in an interview with CNBC television.

``It's taking away their cash cow and leaving them with the toxic waste,'' said Tim Backshall, chief strategist at Credit Derivatives Research LLC in Walnut Creek, California......

.......``Buffett is trying to get hold of the most secure section of financial guarantee market for a modest price,'' David Roche, who runs London-based research firm Independent Strategy, said in a note to investors. ``But it does not really solve the problem of credit defaults in structured finance or the danger of counterparty failure if the monolines go belly up.''......

.......The cost of protecting corporate bonds from default reached a record for a third day. Credit-default swaps on the benchmark Markit CDX North America Investment-Grade Index soared 7.5 basis points to 143 and traded at 136 basis points at 11:07 a.m. in New York, according to Deutsche Bank AG.

Traders speculated credit losses will widen after American International Group Inc. said faulty accounting caused a bigger- than-expected drop in its holdings......

.....AIG, the world's largest insurer by assets, said auditors found ``material weakness'' in the way it accounted for credit- default swaps and that the value of its investments fell $4.88 billion, four times more than previously disclosed for October and November.

``We're in kind of uncharted territory for accountants in a lot of these products,'' said Ricardo Kleinbaum, a credit analyst at BNP Paribas SA in New York. ``Internally, all financials are grappling with this issue of how to value.''.....

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Accounting flaws at the American International Group significantly understated the insurance giant's losses on complex financial instruments linked to mortgages and corporate debt, A.I.G. said on Monday, raising new questions about the deteriorating health of financial companies.

The disclosure stunned Wall Street and raised concern that other companies could report similar problems related to instruments known as credit default swaps. The news sent A.I.G. stock tumbling 12 percent, or $5.94, to $44.74, its lowest level in a year.

"We are going to see more and more problems come to light like this," Lynn E. Turner, a former chief accountant at the Securities and Exchange Commission, told The New York Times. "This is an indication that these large financial institutions do not have the risk management systems in place to give us accurate data."

In a securities filing, A.I.G. said it would take a $4.88 billion charge related to a decline in the value of credit default swaps. That is roughly five times the charge the company suggested it would take in early December.....
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[TJ_98370]

NEW YORK, Feb 14 (Reuters) - Moody's Investors Service on Thursday cut its top "AAA" ratings on FGIC Corp's bond insurance arm, citing the insurer's weakened capital position and business profile.

Moody's cut Financial Guaranty Insurance Co's "AAA" insurer financial strength rating by six notches to "A3," the seventh-highest investment grade rating. It also cut parent company FGIC Corp's senior debt rating to "Ba1," the highest junk level, from "Aa2.".........

[TJ_98370]

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Feb. 15 (Bloomberg) -- A rescue plan for troubled bond insurers MBIA Inc. and Ambac Financial Group Inc. may be in place before they lose their top AAA ratings, New York Insurance Department Superintendent Eric Dinallo said.

Regulators are trying to help the companies raise $15 billion of capital to avert downgrades and may consider splitting their municipal bond and subprime-mortgage debt businesses, Dinallo said yesterday in an interview on Bloomberg Television. New York Governor Eliot Spitzer told Bloomberg Radio today that the insurers must get new money within days or he will step in.

``You are either going to see capital infusion plans or some kind of a more dramatic structural change,'' Dinallo said from Washington, where he testified at a hearing of the House Financial Services subcommittee on capital markets into the insurers. ``A few months from now, the companies are not going to look exactly the same.''....
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