MBIA Admits $30.6 Billion CDO Exposure

MBIA stepped up to the plate today and admitted a $30.6 Billion CDO Exposure.

MBIA (MBI) said it has exposure to $30.6 billion of collateralized debt obligations it insures, including a large exposure to risky bonds known as CDO squared, sending its stocks plummeting 22 percent in early trading on Thursday.

MBIA said in a statement released on its Web site on Wednesday that it has exposure to $30.6 billion of total CDOs net par that it insures. MBIA, the world's largest bond insurer, also is vulnerable to $8.1 billion of CDOs backed by high-grade collateral, 85 percent of which are risky bonds known as CDOs of CDOs, or CDO squared.

"We are shocked that management withheld this information for as long as it did," said a report from Morgan Stanley, referring to the CDO-squared exposure.

"This new disclosure completely changes our view of MBIA being a 'more conservative underwriter' relative to Ambac," said the Morgan Stanley report, which was co-written by analysts Ken Zerbe and Yoana Koleva.

Now let's see if the rating agencies react. Will they find yet another lame excuse to avoid a downgrade of MBIA? The question at hand is not whether MBIA is "AAA" or "AA" but whether or not MBIA is complete junk.

Another question is, if MBIA can withhold information like this for so long, who else is doing it?

Yesterday in Financial Day of Reckoning Approaches I mentioned "S&P cut ACA Financial Guaranty Corp's rating to 'CCC,' or eight levels below investment grade, from 'A,' the sixth-highest investment-grade rating.

ACA was delisted before the S&P reacted. That is how far they are behind the curve and already we can see the ratings agencies are way behind the curve again. I will once again repeat my statement: It's Time To Break Up The Credit Rating Cartel. They no longer serve any legitimate purpose.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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