Seattle Bubble Forum Archive

I am a bit of a loss to understand how all these proposals to split the monolines, to seperate the plain-vanilla bond insurance operations from the derivative side would work.

Just what derivative insurance business is there to save? From what I hear there have been only a couple CDOs created for 2008, and hardly any new issues came out in the last few months. These guys can't really believe there is going to be significant interest in CDO investments over the foreseeable future (say 5 years) do they?

There can't be any measurable recovery of the derivative securities markets until all the toxic products that are currently in a state of flux are fully written off, or reached valuations that all market participants can agree on. As long as rating downgraded keep dribbling out every week this isn't going to happen.

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Perhaps a split up isn't a totally voluntary option -----



NEW YORK/WASHINGTON (Reuters) -New York insurance regulator Eric Dinallo, who is heading up efforts to rescue bond insurers, is set to testify that he will consider allowing the companies to split their relatively strong municipal bond guarantee businesses off from the problem parts of their businesses.

According to prepared testimony obtained by Reuters, New York Insurance Superintendent Dinallo prefers to protect all parts of the bond insurers' business, but if it becomes clear that is not possible, his first priority is to protect municipal bond issuers and investors......
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Good summary article IMHO. Monoline split-up appears to be far from a done deal ---



.......Ambac is reportedly considering a plan to split its operations into two subsidiaries, one responsible for securities including mortgage-backed CDOs, and another for municipal bonds. This split into two "houses" of Ambac would allow the municipal bonds side of the house to keep its high credit rating while thrusting the massive debt problems related to subprime lending onto the other half of the business. FGIC has already told the state of New York that it needs a similar split. Investment banks that have bought insurance on mortgage-related securities through Ambac and FGIC will use the court system to oppose this business practice, as they are concerned such a move would leave their insurance contracts suddenly backed by smaller, less financially stable companies that will not have AAA credit ratings. MBIA, meanwhile, opposes the concept and has raised doubts that such a split can be legal. As the largest of the three insurers it is best equipped to survive the current crisis without halving itself, and it has already raised over $2.5 billion to cover its debts and regain stability...........

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Wow! I did not think MBIA would split.



MBIA Inc., seeking to stave off a crippling credit rating downgrade, will stop writing guarantees on asset-backed securities for six months and will separate that business from its municipal unit within five years....

within 5 years. when they get around to it.

This whole thing is just an orchestrated delaying tactic