Saturday, December 8, 2007

A Business I Never Understood-6

"MBIA Inc. fell the most in more than 20 years in New York trading after Moody's Investors Service said the biggest bond insurer is 'somewhat likely' to face a shortage of capital that threatens its AAA rating. ... The loss of MBIA's top ranking would cast doubt over the ratings of $652 billion of state, municipal and structured finance bonds that the company guarantees. ... The insurers guarantee $2.4 trillion of debt and downgrades could cause losses of $200 billion, according to Bloomberg data", Christine Richard at http://www.bloomberg.com/, 5 December.

$200 billion? Were the monolines ever worth $200 billion? Mike Shedlock (MS) at http://www.minyanville.com/ wrote on 6 December, "MBIA and Ambac are not now, nor were they ever in a position to guarantee anything. When times were good guarantees were not needed. Now that times are difficult the increasing likelihood is that those guarantees are essentially worthless". For years I have said what MS said in virtually the same words. However, I always felt the monolines' guarantees were worthless. The rating agencies must be filled with economic idiots to have ever believed anything else.

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