Tuesday, February 26, 2008

MBIA and Moody's conspire to rob municipalities

Voltron says: somone posted the following commentary on a Wall Street Journal blog

The default rate on Municipal bonds is at 100 times lower than corporates over the past 25 years. Over the past 10 years the rate of default is .005 percent or so. So MBIA and AMBAC collect premiums but never payout claims. That is why the profit margins are astronomical for an insurance company. S&P and Moody’s are complicit in this scheme because they under rate muni bonds. The losers of this are the municipalities that have to pay fees. Its no wonder Buffett wants to enter this lucrative aspect of the business. The insurance business on structured products is for dolts like Mr. Brown who thought with without any insight that other types of bonds with similar ratings would merit similar returns. Little did he know that his idiotic rating agency friends didn’t get that right also. AAA in CDOs really meant junk. Brown is the joke and not Ackman, who like any opportunist is trying to make a buck. Brown on ther hand is raising the cost of financing for municipalities and taking away funds for education, transportation and healthcare despite his pronouncement he’s for increasing employment. The banks are in cahoots with Brown because if MBIA get downgraded then the banks will have additionally writedowns and may have to bring additional assets on to their balance sheet. The simplest stopgap measure is for the banks to provide capital to MBIA so the can maintain their AAA rating. But eventually market forces will catch up and the overwhelming increase in housing foreclosure, mortgage writedowns and defaults will lead to further losses in CDOs. It will also lead to losses in credit derivatives against assets like CDOs. So Brown is only deluding himself and shareholder and potential investors of MBIA. Why do you think Buffer only wants the muni insurance business and not the shitty structured stuff Brown had his people add?

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