Cart (0)
business newsBond Insurers Beg for Piece of Bailout Action
A sure sign that race for government money out of control.
PRINT
 |
|
First, Treasury Secretary Hank Paulson offered to buy up mortgage-backed securities rotting away on the balance sheets of our biggest banks. When it became clear more immediate action was needed, he forced Bank of America (BAC), Citigroup (C), Wells Fargo (WFC), Goldman Sachs (GS) and other big lenders to accept $125 billion in fresh capital.
Then, as the financial crisis deepened, MetLife (MET), Prudential (PRU), Hartford Financial (HIG) and other big insurance companies were rumored to be lining up for the government dole.
Next came General Motors (GM) and Chrysler, who are begging for billions from Washington to complete their merger.
Now, bond insurers Ambac (ABK) and MBIA (MBI) are nuzzling up to the government spigot, scrambling for their piece of the protective TARP. The Wall Street Journal reports the 2 firms are even vying to be part of Treasury’s plan to inject capital into troubled financial institutions.
Including the bond insurance industry in the bailout, Ambac and MBIA executives argue, would allow the firms to step in and insulate the rest of the financial industry from losses. Ambac called the potential impact “exponentially positive.”
The mere thought of including these firms in the bailout, frankly, is nauseating.
Ambac and MBIA personified the abject inability to assess risk during the credit boom, handing out bond insurance like candy on Halloween. Only theirs were the pieces parents warn their kids about: Snickers a la razor blades.
Their guarantees on debt ranging from municipal bonds to collateralized debt obligations allowed investors to ignore credit risk, use obscene leverage and rake in profits while adding next to no true value to the economy. When the bonds went sour, the firms' tiny cash reserves paled in comparison to their oblgiations.
As a result, hospitals, cities and countless other innocent bystanders had to scramble earlier this year just to make payroll as debt costs skyrocketed.
The bond insurers already had their chance for a bailout. Thankfully, their pleas have thus far fallen on deaf ears - and they haven’t gotten their grubby little paws on any taxpayer money.
With the government already considering a massive mortgage-guarantee program, bond insurers could be fearful their usefulness may have finally run its course.
And rightly so. It has.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
