Spitzer: Bond Insurers have "Four or five days" to Re-capitalize
Submitted by
CalculatedRisk on Thu, 02/14/2008 - 12:02pm (75 comments)
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FGIC just got downgraded. Market didn't like it.
Ackman discloses $1.3 mln put holding in Ambac Dec. 31
Anyone have the number for china? or the middle east?
Or know anyone who hasn't bought toxic waste from the US and might be in the market?
Does this mean that Buffett gets to buy the cream and the sour milk goes someplace else?
I was looking up FGIC and got this:
Financial Guaranty Insurance Company (FGIC), like a superhero, secures the city ... well, secures the city bonds, anyway.
Financial Guaranty Insurance Company - Google Finance
Which superhero was that again?
Bond insurers have four to five business days to re-capitalize themselves.
Whens Presidents weekend. That would give them an extra day or two right?
MBI and ABK both up today. Wouldn't separating out the bond insurance part just leave the holding companies, and the shareholders, nothing but the toxic CDS positions?
Why on earth are the shares up?
Given the take rates on bonds yesterday, the only possible way to get cash-ol-a is sell more equity or a % of the company for peanuts on the dollar.
ades, it was Blunder Woman or Crash Gordon, not sure which
Does Spitzer have authority to order this or is he blowin smoke?
Alo, ha hahaha
This superhero:
Hancock
PPT right on schedule at 3:00pm.
Does a downgrade from AAA to A3 matter?
I was going to say "too late!" and post the FGIC news, but I too am too late.
MM, same question I had a few threads back. Can the regulators and/or AGs force'em into receivership/BK?
Tanta? What do you say?
Whats even weirder is that PMI is now up 3% on the news...
tj & the bear,
That Hancock clip is hilarious.
Hancock gunna fix the monolines!
"regulators will have to step in and separate bond insurers' municipal businesses"
I'm not sure why he thinks that logically follows. There are other options.
Tanta? What do you say?
I can't say anything. "Blunder Woman" forced me to expel all the air in my lungs and I still can't quite breathe properly, let alone speak.
there is more than one solution to the liquidity trap.
but we don't have time as we appear to have passed another milepost on the way to financial crisis.
as the fed continues lower rates the lending institutions are either frozen or issuing loans at higher rates.
so much for pushing on the string.
but here is a small, but by example, significant solution to the liquidity trap.
the fed, thru an appropriate agency should lend money, directly to students who need a loan to attend a trade school, community or 4 year college.
why should students and their families pay the arbitrage from which the student loan companies profit virtually risk free?
student loan companies have recourse to default thru government guarantees AND get a percentage if collection takes place there after.
this might be a good investment for social security surplus money since social security is supposed to be an inter-generational commitment.
after all if we are going to let foreign sovereign wealth funds buy into banks etc why shouldn't our government invest a little of the taxpayers money in the future... the nurses, mechanics, engineers, police officers, scientists, carpenters, doctors etc of tomorrow .
Does this mean that Buffett gets to buy the cream and the sour milk goes someplace else?
Is it really cream, or is it just less sour?
If you look at MBI on the minute-by-minute charts, it had a trade or two that put it down in the $10 range. I bet that triggered a bunch of short covering, that then ran the stock price up.
I like mock turtle's idea.
Except, the relative easy access to student loans has driven up education costs and resulted in onerous debt upon graduation (or worse, failing to graduate).
Everything in moderation.
Thread music: Etta James / Stormy weather
YouTube -
Ya, like getting your wisdom teeth cut out interesting. :>)
picosec,
So, the logic is:
"Except, the relative easy access to student [home] loans has driven up education [housing] costs and resulted in onerous debt upon graduation [home purchase](or worse, failing to graduate [purchase a home])."
from what i have read NY has no ability to do anything to Ambac b/c they are incorporated in WI.
Spitzer can't separate the businesses. That's asset stripping and its illegal. If I owned an insured CDO and someone - shareholder or regulator - stripped the profitable business out and left the loss making business to sink, I'd sue.
when I buy insurance from a company I rely on the whole company to back that insurance. It would be like the regulators stripping the florida property cat business from Allstate after a hurricane to support potential claims in NJ & NY.
What ever you think of Eliot Spitzer, at least he was fairly transparent when he talked today at the Congressional hearing.
For one thing he explained what a "monoline" insurer was. Originally monoline meant one line: municipal bonds. Then later they began insuring more risky bonds like mortgage bonds. It looks like Warren Buffet is trying to separate the muni bonds from the more risky stuff. I guess that's good.
Looks like Moody's and S&P will wait and see if Dinallo and Spitzer will do their dirty work for them regarding ABk and MBI over the next week. If Moody's can downgrade FGIC now , why must they wait a few weeks to complete their review of ABK and MBI ? ABK , based on what the company has said , isn't trying to raise capital.. so why the delay ?
428 visitors, wow, these downgrades really make a difference to traffic....
Any way the AMBAC CEO said on CNBC that all is well so Governor Spitzer probably didn't understand properly that these companies have NO troubles whatsoever, they are all very well capitalized except to deal with the tiny technicality of those 06 and 07 vintage mortgages.
plagerizer and Paulm:
we'll see about that.
I think you'll be surprised by what is legal.
regardless of what happens with the existing bond insurers, i have no doubt that buffet is going to dominate the market going forward.
speaking as a berkshire shareholder, that sounds fine to me!
Wheeze-inducing wit:
Alo - 1
Tanta - 87
the fed, thru an appropriate agency should lend money, directly to students
mock turtle, you are such a dreamer!
That aside, why should ANY student have to borrow for an education? Society should be paying for its replacement costs (i.e its future workers) out of cash flow. If it is not, something is seriously wrong.
Same is true for infrastructure costs. Maintenance should come out of societal cash flow, not issuing of bonds.
This contemporary notion of borrowing from the future to maintain current standard of living is further proof that we've lost touch with reality.
unirealist, that is correct. Most people can't seem to differentiate between taking a loan or bond to build something new versus maintaining what we have. Example, a loan to build a new powerplant, ok. Having to take a loan to maintain everything = bad.
It's all about the loans giving a bigger return on investment than the cost, and a lot of these loans aren't doing that (housing is an obvious example).
Gary,
Yep. Since my client can't give me information I need, I'm sitting here reading about Deepening Insolvency suits.
Holy ----!
You'd take a loan out for capital investment, not maintenace. Using long-term debt for short term os needs is a no-no in public finance
If unirealist & mock turtle keep this student loan inter-generational talk up... I'm going to go into the attic and find a shirt with a big fist on it and start singing 'The Internationale'...
That is of course unless I've already used the shirt to clean paint brushes a couple decades ago.
CFC usually reports its monthly reports by now. I wonder if its so bad that they will do it late friday instead of early Tuesday as is the norm.
when I buy insurance from a company I rely on the whole company to back that insurance. It would be like the regulators stripping the florida property cat business from Allstate after a hurricane to support potential claims in NJ & NY
I don't think the premiums from NJ/NY are priced based on Florida risks.
Can the company use reserves set apart for one underwriting class to pay out claims against another class?
Are they REALLY going to do it? Are they REALLY going to begin to downgrade all these joke companies and force the cascading defaults? Can we really get a chance to see "counterparty risk" in action with massive liquidations triggered by these joke companies losing their super-duper AAAAAAA status?
It would be interesting, for sure!
mock turtle et al:
StudentLoanJustice.Org
The list of corruption under Bush is so long this one hardly makes the cut, but it is a lasting disgrace that the Bush Education Department, and tyhe the GOP led congress, allowed student loan companies (most egregiously Nelnet) to plunder the public coffers at will.
Of course, the Stafford Loan program remained frozen at 1992 levels.
Never forget - these guys EXIST to break the gov't, rape the public, and shower money on their cronies. Yes, there are some Dems that engage in this too . . . but it is the whole reason for being for the GOP.
tyhe = the
Why Gary, are you sure you didn't go to UC Berkeley? Right on & far out! Seriously, my wife and daughter are proud UC grads.
Money Honey on CNBC asked Dinallo if Ackman talking his book on insurers is illegal and ..Wonder of Wonders..Dinallo said YES....WOW!!!
I applied to Berkeley
"It looks like Warren Buffet is trying to separate the muni bonds from the more risky stuff. I guess that's good."
Don't be too sure about it being 'good'. There is a lot of complication here and there also may be muni defaults ahead if tax revenues drop strongly (which they must do in areas where taxes are based on valuations). Personally, I think Buffett was grandstanding a bit and I think he should be more prudent.
"Money Honey on CNBC asked Dinallo if Ackman talking his book on insurers is illegal and ..Wonder of Wonders..Dinallo said YES....WOW!!!"
Actually, I think shorting a stock should be illegal.
I second Dryfly's point. When you pay students to go to school the point becomes avoiding work rather than study.
"Money Honey on CNBC asked Dinallo if Ackman talking his book on insurers is illegal and ..Wonder of Wonders..Dinallo said YES....WOW!!!"
Actually, I think shorting a stock should be illegal.
EngineerJim | 02.14.08 - 5:48 pm | #
If that is the case, then why should it be legal for anyone who is long a stock to say anything nice about the company? If short selling were not allowed, the markets would not reflect comlete information (or would reflect less complete information than they currently do). Anyways, you can always create a synthetic short with options, or just buy puts. Generally speaking shorts are more careful investors and do better research than longs. The reson is that the risk on a long is limited to what you invest, with a short it is infinte.
wally, buffet has been a student of insurance for decades; the heart of berkshire hathaway is its insurance business; and it's not like he's giving it away, he's charging.
i suspect he knows what he's doing....
MaxedOutMama writes: I second Dryfly's point. When you pay students to go to school the point becomes avoiding work rather than study.
My parents and the good citizens of California paid me to study (and avoid work); study (and avoid work) I did, and I thank them both, and believe both have been paid back. (Certainly the Franchise Tax Board has been.)
I think it's good to use work avoidance as a motivation for students to stay students, and work hard; and that work/study mostly distracts from having the time to develop good study habits.
Here's to the educational benefits of work avoidance!
Donallo essentially works for Spitzer. The NY Insurance department has a great deal of power regarding regulation of mbi and fgic.
Splitting the companies is essentially the same as Buffett's offer.
By the way, the unearned premium reserve is associated with the muni's, so there should be no problem pulling that out. How to get additional capital out and adequately support the munis AAA is going to be a good trick.
Buffett's offer takes the entire liability and $3b of capital. It leaves all the remaining assets to support the CDO's, structured finance, etc.
Puts another $5 billion total capital into the industry. Thats $5 billion cash, not some sort of leveraged deal.
We will just have to see.
Insurance is soley regulated by the states (no federal regulation). So I imagine Spitzer can make this happen.
Dirk van Dijk: You can say anything you want to about a stock good or bad. No problem there.
However, I don't see why you should be able to "borrow" someone's shares and sell them. (Without the owner's permission.)
Maybe Gov. Spitzer's threat will get those corporate fat cats who are refusing anything to do with losing their comfy chairs.
That interview with Ambac's Michael Callen in today's Fox Street Journal was hilarious...
"I don't accept that term [bailout]... This [Ambac] is a very solid, liquid, high-earning, well-managed company..."
FYI: current statistics show that it takes the average community college student 4 years to graduate with an associates degree.
As for student loans, it would seem wise to institute an extension of the meme underlying public school funding (i.e., you receive opportunity to receive a basic free education to train for a basuc transparent skill.)
I can see huge social benefits to funding training in specific job titles (e.g., accountant, doctor, nurse, etc.) and leaving these graduates with little, if any debt.
That said, I have always been curious how Tanta went from English Literature to the head of mortgage finance at a bank!?!
Perhaps they mean The Joker.
I don't see why you should be able to "borrow" someone's shares and sell them. (Without the owner's permission.)
In that case why should you be allowed to "borrow" someone's money and buy shares (or anything else) with it?
ENGINEER JIM: "However, I don't see why you should be able to "borrow" someone's shares and sell them. (Without the owner's permission.)"
Shorts help the market by increasing efficiency and price discovery. I'm not a fan of activist shorts who push their way into the media, but overall, shorting is a good thing. The ability to short stocks is one reason stocks price themselves better than other hard-to-short assets like real estate or commodities.
As for someone borrowing your shares without permission, they are not doing that. If you signed a brokerage agreement, I'm sure there was a clause where you agreed to let your shares be borrowed. Of course, if you really don't want anyone borrowing your shares, you can either try to get your broker to avoid that (they may refuse because brokerages make money off loaning your shares), or take ownership of shares in your name.
The only shorting that is questionable is so-called naked shorting, where you short without actually having a share. The SEC keeps saying this doesn't happen but I don't have a strong opinion on that either way. In any case, naked shorting likely doesn't happen for the big stocks (the bond insurers were sizeable before the stock price collapse)...
sivaram, the irritating thing to me about shorting with borrowed shares is that the interest goes to the brokerage, not to you....
It's after 8 somewhere, so I'll go OT:
generally speaking, your brokerage can't lend your shares out without your consent if you have a cash account. on the other hand, if you have a margin account they can use some of the shares in your account to lend out (because you are borrowing the money for these shares in the first place)
take care & enjoy
Ken: "In that case why should you be allowed to "borrow" someone's money and buy shares (or anything else) with it?"
If I pay interest to borrow the money, that would be ok. But the brokerage isn't paying me interest to borrow my shares.
Sivaram: "As for someone borrowing your shares without permission, they are not doing that. If you signed a brokerage agreement, I'm sure there was a clause where you agreed to let your shares be borrowed. Of course, if you really don't want anyone borrowing your shares, you can either try to get your broker to avoid that (they may refuse because brokerages make money off loaning your shares), or take ownership of shares in your name."
Yes, I guess if I read the brokerage agreement, it says they can borrow my shares. I understand you can write a letter to the brokerage and tell them to not loan your shares.
As far as naked shorting, I understand it goes on all the time even though it's illegal.
"As far as naked shorting, I understand it goes on all the time even though it's illegal."
Evidence, please? I would dearly have loved to have shorted Calpine 3 years ago, but I couldn't scrape up the shares (there was such a lack of borrowed shares that there was an arbitrage in the put/call parity relationship).
Alas, no shares to borrow meant that the short was impossible. I wouldn't even know where to start shorting naked. And jail time is, um, unattractive.
In order to sell a put option, the seller of the put must be able to short the underlying share; otherwise, the put option is impossible to hedge. That's one social benefit to legal shorting. The second is price discovery: markets that don't allow shorting are less efficient, and there's reams of academic literature on this.
Finally, shorting keeps managers honest. Remember, managers are not the shareholders friends. They often hate that which makes shareholders happy (short selling, for one, hostile takeovers for another) and favor that which makes shareholders unhappy (excessive comp and poison pills).
If managers hate something, it's often an indication that shareholders shouldn't mind it.
Whether it's naked short selling or the present credit fiasco, one of the major underlying causes is the ascendancy of the Chicago school of economic thought over the last two decades or so. This resulted in weak regulation by captured regulators, whose incompetence was actually cheered by policy makers. This has created huge distortions which ultimately must correct themselves (markets work ... eventually). Until effective oversight is restored to make markets work efficiently and smoothly, we'll cycle between ever smaller bubbles and ever more dire busts until finally the bust is so bad that no bubble can inflate out of it.
No one borrows your shares without your permission. You give your permission to loan your shares on a margin account agreement. If you don't want your broker borrowing your shares, open a cash account only. When you open a cash account, you do not agree to loan your shares. Naked shorting is illegal and as such, has no relevance to the issue of the morality of legal shorting.
One may (very politely) ask where were the regulators a few years back? What is a purpose of government watchdog that only collects bodies after the fact?
Spitzer routinely receives funds from the very industry he regulates.
Spitzer Campaign Filings Show $400,000 in Contributions From Lawyers - July 21, 2005 - The New York Sun
The content and remarks section here has gone way downhill as three or 4 people banter back and forth like clowns on a smoke break....boring!
Say goodbye to the America we dearly loved. It is slowly falling apart. I just hope we dont have riots in the streets. You may think I am crazy, but strange things happen when people have no homes, no income and no dignity.
Shorter Spitzer: "Give Warren Buffett your money, or I'll give Warren Buffet your money for you."
Don't think of it as allowing students to avoid work as so much as investing in future workers.