Sunday, February 17, 2008
FGIC-in great!Monoline doing the splits? Seeing double.
The big news isn't the Northern Rock nationalisation.I predicted that a while back in an earlier blog.The really big news is on the other side of the pond.You'll miss it if you blink.
Last Friday FGIC,one of the large bond insurers put forward proposals to split itself in two.Monoline to Duoline it were.It proposes to house the low risk municipal bond insurance piece in one entity,leaving the now worthless credit-default swaps insurance trash in the other.A perfectly good idea actually.
The municipal bond insurance piece then will have a higher credit rating,presumably triple A.Why does this matter.Well think about it,the the remaing piece (the writer of the risky stuff)then can be downgraded or even file for insolvency or chapter 11.
If this bifurcation process into two companies occurs and AMBAC,MBIA and others follow suit,it will result in the end game for some investment banks.The instruments they have have insured will have to be written down on the investment banks' balance sheets to zero.The G7 ministers agreed that about 400$bn of writedowns will result from sub-prime.Yet we are only half way there,if that.Maybe once monolines split,then we can see who's been fiddling their balance sheet reporting.Naughty Bankers.
Of course l believe,and sincerely hope Merrill will be on this shit list.
RB
Last Friday FGIC,one of the large bond insurers put forward proposals to split itself in two.Monoline to Duoline it were.It proposes to house the low risk municipal bond insurance piece in one entity,leaving the now worthless credit-default swaps insurance trash in the other.A perfectly good idea actually.
The municipal bond insurance piece then will have a higher credit rating,presumably triple A.Why does this matter.Well think about it,the the remaing piece (the writer of the risky stuff)then can be downgraded or even file for insolvency or chapter 11.
If this bifurcation process into two companies occurs and AMBAC,MBIA and others follow suit,it will result in the end game for some investment banks.The instruments they have have insured will have to be written down on the investment banks' balance sheets to zero.The G7 ministers agreed that about 400$bn of writedowns will result from sub-prime.Yet we are only half way there,if that.Maybe once monolines split,then we can see who's been fiddling their balance sheet reporting.Naughty Bankers.
Of course l believe,and sincerely hope Merrill will be on this shit list.
RB
