I think it is too late to "hedge their exposure" and how much did this hedge cost? ACA is a ticking time bomb....

ACA from ~$15 to ~$0.75 in 6 months. Market cap of $23 million, (with an "m").

This looks to me like a case where the bookies were laying off that same big losing bets on each other.

Hey guys, can you hold it together till January? I'm trying to have a holiday here!

Merry Grinchmas!

sorry. wrong greeting.

Happy CDOspray!

All sorts of talk, some of it public, about impending bankruptcy at ACA. These rumors have been floating widely for over two weeks.

Can't wait for this shoe to drop...

Time for a new UberNerd. What happens when the insurance company BKs? Does the insured take back all the risk, mark to market and look for new insurance while getting in line at BK court for the crumbs?

Robert Cole-

That's exactly I was getting at with my shoe dropping comment. I don't know what happens, though I've heard that the liabilities get transferred to the CDO holder. I could imagine that litigation could tie things up for a while, however.

I'd love an answer to this issue.

"Why is this new counterparty any better? Could be a case of throwing good money after bad."

I have wondered about this myself. Seems more like a trading vehicle. If the counterparty goes bust, how much will that CDS actually be worth, even in a trade? Zero?

Looks like the Grinch who stole the santa claus rally this year is Ben. He got a peak at PPI & CPI & decided to throw equities to the wolves.

Mark's stagflation call is gaining traction. If we don't get a complete meltdown and a total employment bust it seems stagflation is about right. If employment goes in the tank hard we get a quick cut to 1% and hyperinflation begins to look more probable.

Hiding, it is back, and with a vengeance.

That is the real reason for the Feds pushing liquidity. Massive losses about to be realized, and they need to keep confidence up in the ability to keep transacting business. If a major player goes down, the system will fail, so the fed will allow a major player to operate busted just to keep the system going while the unwinds proceed. I look to see some unwieldy fast mergers within six months.

Someday this war's gonna end...

micronin127: "Does anyone find it strange that the solution to counterparty risk was to buy CDS's, which assumedly introduces another counterparty to the equation?"

Exactly. And at this point, we have no idea who all the CDS counterparties are, nor what their capitalization is. In short, a CDS isn't worth a whole lot because there are serious questions regarding whether it will actually be paid out.

And the point on Goldman is an interesting one. I also have to wonder if they've profited by buying derivative instruments which have increased on paper--but where the counterparty may not be able to deliver. I think it's only a matter of time before we see a very dramatic visit by Goldman to the confessional.

Nov. 28 (Bloomberg) -- William Ackman, whose hedge fund has short positions on bond insurers, said he will make ``hundreds of millions of dollars'' on his bets and plans to donate the proceeds to charity.
Story: MBIA, Ambac Bear Ackman to Donate Profit to Charity (Update6) - Bloomberg.com
I think we have the real "Wall Strteet Man of the Year."

ACA is the counterparty to CIBC without question.

I do tend to struggle with the monetary issues. However, I do fail to understand how the Fed can "monetize" its way out of this crisis. I thought that the way that the Fed "monetizes" is by increasing the ability of banks to lend money. But isn't the problem here that banks have lent way too much money? Who is going to take out more loans to buy what assets? I guess if interests rates go down to zero then it is no longer necessary to actually produce income on the asset? But then how do banks make any money either? I mean they still need to find someone to lend the money out to at something above zero which again requires an income producing asset?

The only way to really "inject" money is to basically have the Fed print money to fund a budget deficit that allows the government to "pump" more demand into the system.

I guess what I am saying is that absent an income stream to support the debt via some form of profitable "business" I cannot see how just making money available to be borrowed, even an infinite amount, can get us out of a solvency crisis. If I am already up to my eyeballs in debt, giving me more may help me limp along but it does not really solve my problem.

"Under applicable rules and regulations of the NYSE, ACA Capital must respond to the NYSE within 45 days from receipt of the notice with a business plan that demonstrates its ability to achieve compliance with the continued listing standards. ACA Capital does not believe that it can take steps which will permit it to satisfy the financial continued listing criteria of the NYSE within the 18 month cure period provided for under the NYSE rules and regulations. Therefore, ACA Capital does not intend to submit a plan to the NYSE. ACA Capital has been informed by the NYSE that it will commence suspension and delisting procedures as a result of the failure to submit a plan."

PaulG,
you are correct for some of the risks described. However, given the nature of the derivatives market combined with swaps I believe the exact same blend of risks has been reintroduced.

We shall see when they unwind some of these with counterparties that are Bk'ed. ACA appears to be the first- remember, they also did a bunch of transactions aside from insurance with their own pools of money.

These questions will only be fully answered after a lot of searching through volumes of poorly documented paper that the big firms used to paper over their trading of derivatives.

That is the application of Herstatt risk (counterparty risk) to this situation. So it isn't forex, but what should be delivered based on a piece of paper two years old still will be stuck in a bk.

Someday this war's gonna end...