Credit Pressure Filters Down To Muni Market - Bond Insurers' Exposure To Troubled Mortgages Ripples Through System The $2.5 trillion market for tax-free municipal bonds, a popular investment for many individual investors, is the latest unlikely corner of Wall Street to be roiled by the nation's real-estate and credit-market woes. (...) In this case, the contagion revolves around the bond insurers, which are little known outside Wall Street and operate behind the scenes to provide insurance guarantees to issuers of municipal debt. If a city or hospital issuing a tax-free bond should struggle to pay, these bond insurers in some cases back them up. The issue is that muni-bond insurers such as Ambac Financial Group Inc., CIFG Guaranty and Financial Guaranty Insurance Co. in recent years also have become backers of debt instruments holding now troubled mortgage securities. Because of that exposure, the insurers are under pressure from rating services to raise capital to cover potential losses on those securities or face downgrades.
The $2.5 trillion market for tax-free municipal bonds, a popular investment for many individual investors, is the latest unlikely corner of Wall Street to be roiled by the nation's real-estate and credit-market woes.
(...)
In this case, the contagion revolves around the bond insurers, which are little known outside Wall Street and operate behind the scenes to provide insurance guarantees to issuers of municipal debt. If a city or hospital issuing a tax-free bond should struggle to pay, these bond insurers in some cases back them up.
The issue is that muni-bond insurers such as Ambac Financial Group Inc., CIFG Guaranty and Financial Guaranty Insurance Co. in recent years also have become backers of debt instruments holding now troubled mortgage securities. Because of that exposure, the insurers are under pressure from rating services to raise capital to cover potential losses on those securities or face downgrades.
MBIA, Ambac Downgrades May Cost Market $200 Billion Nov. 15 (Bloomberg) -- The crisis of confidence in bond insurers that bestow top credit ratings on debt sold by borrowers from the New York Yankees to Citigroup Inc. may cost investors as much as $200 billion. The AAA ratings of MBIA Inc., Ambac Financial Group Inc. and their five smaller competitors are being reviewed by Moody's Investors Service and Fitch Ratings. Without guarantees, $2.4 trillion of bonds may fall in value and some issuers would get shut out of the capital markets. ``We shudder to think of the ramifications,'' said Greg Peters, head of credit strategy at New York-based Morgan Stanley, the second-biggest U.S. securities firm by market value. ``You have politicians, taxpayers, municipalities, states. It just opens up a Pandora's box. That is a huge destabilizing force.'' For more than 20 years, the safety of insurance has eased the way for elementary schools, Wall Street banks and thousands of municipalities to sell debt with unquestioned credit quality. Now, mounting downgrades on insured bonds backed by assets such as mortgages are raising doubts about the stability of the guarantors. Armonk, New York-based MBIA, the world's largest, has a 28 percent probability of default, and Ambac's is 40 percent, prices of derivatives show. MBIA fell $1.44, or 3.6 percent, to $38.37 in New York Stock Exchange Composite trading as of 12:10 p.m., and have dropped 47 percent year to date. Ambac's shares fell $1.33, or 4.4 percent, to $29.09, and have lost 67 percent year to date. (...) ``The insurers can protect you from one unusual, idiosyncratic event, like a Hurricane Katrina,'' said Daniel Castro, chief credit officer of structured finance at GSC Group in New York, which oversees more than $24 billion of debt. ``What if you had 20 Hurricane Katrinas and everything is wiped out? That's what you have right now.''
Nov. 15 (Bloomberg) -- The crisis of confidence in bond insurers that bestow top credit ratings on debt sold by borrowers from the New York Yankees to Citigroup Inc. may cost investors as much as $200 billion.
The AAA ratings of MBIA Inc., Ambac Financial Group Inc. and their five smaller competitors are being reviewed by Moody's Investors Service and Fitch Ratings. Without guarantees, $2.4 trillion of bonds may fall in value and some issuers would get shut out of the capital markets.
``We shudder to think of the ramifications,'' said Greg Peters, head of credit strategy at New York-based Morgan Stanley, the second-biggest U.S. securities firm by market value. ``You have politicians, taxpayers, municipalities, states. It just opens up a Pandora's box. That is a huge destabilizing force.''
For more than 20 years, the safety of insurance has eased the way for elementary schools, Wall Street banks and thousands of municipalities to sell debt with unquestioned credit quality. Now, mounting downgrades on insured bonds backed by assets such as mortgages are raising doubts about the stability of the guarantors. Armonk, New York-based MBIA, the world's largest, has a 28 percent probability of default, and Ambac's is 40 percent, prices of derivatives show.
MBIA fell $1.44, or 3.6 percent, to $38.37 in New York Stock Exchange Composite trading as of 12:10 p.m., and have dropped 47 percent year to date. Ambac's shares fell $1.33, or 4.4 percent, to $29.09, and have lost 67 percent year to date.
``The insurers can protect you from one unusual, idiosyncratic event, like a Hurricane Katrina,'' said Daniel Castro, chief credit officer of structured finance at GSC Group in New York, which oversees more than $24 billion of debt. ``What if you had 20 Hurricane Katrinas and everything is wiped out? That's what you have right now.''
For decades the plutocrats have been building a global economy based on principles and practices straight from La-La Land and now they are surprised, shocked, and awed the whole thing is going ker-flooey.
They've sucked the earth dry of natural resources, oil is the poster child, and now are wondering why they are going away.
They inject greenhouses gases into the ecology and wonder why the planet is getting warmer.
They divert food into fuel and are then surprised by bread riots.
They stuff kids full of starch, fats, and sugars and complain their children exhibit psychological and physiological dysfunctions.
They release carcinogens into the atmosphere and marvel at the dramatic increase in cancers.
They create smog and puzzle at people dropping dead of pulmonary diseases.
One can only stare in bemusement. A doo run-run-run, a doo run-run
i have recently come to the conclusion that the healthiest survival trait these days is to cultivate an connoisseur's appreciation for absurdity...
there is tremendous resistance to this from the part of the brain that insists that life must make sense.
resistance is futile...
the connection between cause and effect is totally incomprehensible to the average humanoid...
my favourite-of-the-day:
sending negroponte to advise musharref on what to do next...
ROFLMAO!!!
excuse me, i must concentrate on a report concerning the russian government trying to extract some religious cultists from their barricaded stronghold in a cave, where they are threatening to blow themselves up with their children if anyone tries to winkle them out.
sometimes life's surreality has a hollow tone...
emotions crash together like storm crosscurrents in a windy bay.
one day calm will return, imsh'allah.
kismet The person who says it cannot be done should not interrupt the person doing it. Chinese Proverb.
But where have we seen this before? Maybe Nguyen van Thieu, maybe the Shah of Iran, maybe Ferdinand Marcos. Time to leave old friend that's our best advice. Should a told you before but couldn't quite manage it, priorities and all. I can swear there ain't no heaven but I pray there ain't no hell. _ Blood Sweat & Tears
Gore Vidal had it right, though, it's entertainment of a sort, a really twisted sort, and another hero of mine, Kurt Vonnegut, said (paraphrasing) that we're all just here to entertain ourselves, so if I can't trust my heroes, where am I going to turn? I really enjoyed the posts above, so I guess EuroTrib is one of those "turn to" places. Back into my shell now.
Karen in Austin after several gin and tonics.
Nighty-night, as we say in (loathesome) Texas Thence comes our true nobility by grace, It was not willed us with our rank and place. Chaucer
sometimes life's surreality has a hollow tone
I remain firmly convinced we are living in a screenplay written by Andre Breton based on a story by Franz Kafka.
It's the director I can't get a handle on.
Speaking of the Absurd ...
I'm looking for the title of a film I saw some decades ago, as I'd like to see it again. It was French or French Canadian production, shot in black and white. Basically, it was about a 'hard boiled detective' type wandering through various scenes. The only scene I can describe is one where a rebel walks forward on a diving board, is shot, and women divers do a 'Busby Berkeley' sequential dive into the pool, and hold him down until he drowns. I saw it in the 70s but I think it was shot in the 50s -- but I could be wrong.
Does anyone know of this? A doo run-run-run, a doo run-run
