Galling Actions of MBIA and Ambac

In the Desperate Actions Department, MBIA to urge curbing short sellers.

MBIA Inc (MBI) plans to urge lawmakers and regulators to curtail what the bond insurer calls "the unscrupulous and dangerous market manipulation activities of short sellers," according to a copy of written testimony obtained by Reuters.

The testimony, prepared for a February 14 hearing before a subcommittee of the U.S. House Committee on Financial Services, specifically mentions Bill Ackman, founder of hedge fund Pershing Square Capital Management. Ackman has been vocal about its short position in the bond insurers.

But MBIA's testimony does not limit its criticism to short-sellers.

Rating agencies, which are considering stripping MBIA of the top ratings crucial for its business, have damaged the market's confidence in the financial guarantors, the testimony said.

Rating agencies may need to revamp their rating systems, MBIA said. The bond insurer said it and other industry leaders should work with the agencies to "to redesign their systems."

Lawmakers must support capital raising efforts of the bond insurers, because failure could have "far reaching effects on the U.S. and global economies," MBIA wrote.

MBIA Clearly Desperate

For starters anyone blaming shorts is in trouble. It is an act of desperation that has a 100% failure rate for as long as I can remember. Any company baling shorts deserves to have shareholders walk away. It is an implicit admission of failure. Companies that execute well, welcome shorts. The shorts provide fuel for driving the market higher.

What's galling is the request for taxpayer money for the sole purpose of bailing out the company doing the asking. This is not about "far reaching effects on the U.S. and global economies" this is a request for a government handout.

In Buffett's Kiss of Death I noted Warren Buffet's offer to reinsure 800 billion dollars in municipal bonds. The offered was declined. It was declined because the monolines are not telling the truth about what the rest of their business is worth. The answer is tens of billions of dollars in the hole.

Now MBIA is asking taxpayers to pony up money just to keep their failed business model in business. If this was really about saving the Muni market they would accept Buffett's offer. This is really about keeping the gravy train going for MBIA officers.

Dunton and Chaplan wrecked their company and deserve salaries of $0. They should be asking forgiveness from shareholders. Instead they are asking for a handout that will cost tens of billions of dollars, just so they can keep their personal gravy trains rolling.

Ambac and MBIA Blame Rating Agencies

Yahoo!Finance is reporting Bond Insurers to Blame Rating Agencies.

The troubled bond insurance industry is being hobbled by uncertainty surrounding the credit rating process, Ambac Financial Group Inc. Chairman Michael A. Callen is expected to tell a U.S. House panel on Thursday.

"Ambac and the industry's next critical step is to restore confidence. This requires stable and predictable credit ratings," Callen says in prepared remarks to be delivered Thursday before the House Financial Services Subcommittee on Capital Markets.

Rival MBIA Inc. in its prepared testimony, takes a harsher tone. The company blames rating agencies for the current market disruption and suggests rating systems "may need to be revamped."

"Instability of decision making by the rating agencies has damaged the market's confidence in the financial guarantors, thereby destabilizing the broader financial markets," the testimony said.

Callen said the problems facing bond insurers have been overstated. Ambac, he said, currently has the financial resources to "comfortably meet" all of its existing obligations, even under the most dire market conditions.

"Almost no one questions the ability of Ambac to make good on obligations to holders of Ambac guaranteed debt," Callen said.

Instead, he said the biggest challenge for Ambac is dealing with the uncertainty caused by rating agencies' decision to review their ratings on the company.

"We therefore see the current issues facing the financial guarantors not as a question of ability to meet obligations, but rather a challenge to maintain the stability of ratings that have supported our business in the past and that will support it going forward," Callen said.

Any business that depends on an AAA credit rating to stay in business is in a failed business model. Numerous people have said that. I can't take credit for it. What's worse, however, is they willingly jeopardized their credit rating by wandering off into uncharted territory insuring things they knew nothing about and now need handouts to stay in business.

Ambac Asks For Handout

I agree with Ambac and MBIA that the rating agencies are at fault. In fact, It's Time To Break Up The Credit Rating Cartel. But it was greed, not the ratings agencies that got the monolines in trouble.

In the meantime, both Ambac and MBIA companies should be downgraded from AAA or AA to something like B immediately. Buffett will be more than happy to pick up the pieces when that happens. And the sooner that happens the better off the municipal bond market will be.

What this all boils down to is Ambac is asking for a handout. In Ambac's case they want a handout of a rating they do not deserve and most likely never did.

Budget Constraints Hit Department Of Commerce

With a hat tip to Randy, here's an interesting message from the Department Of Commerce.

Due to budgetary constraints, the Economic Indicators service (http://www.economicindicators.gov) will be discontinued effective March 1, 2008.

Economic Indicators.gov is brought to you by the Economics and Statistics Administration at the U.S. Department of Commerce. Our mission is to provide timely access to the daily releases of key economic indicators from the Bureau of Economic Analysis and the U.S. Census Bureau.

Super Duper Senior Bonds

In the truth is much stranger than fiction department, UBS is offering "super duper senior bonds".

UBS highlighted a new structuring technique for Alt-A hybrid deals, which involves carving out ultra high-quality bonds out of the super senior triple-A classes and calling them super duper senior bonds.

"Many investors are reluctant to buy MBS backed by Alt-A collateral including super senior paper, as they fear credit losses," UBS analysts wrote.

In a hypothetical super duper triple-A deal, the bonds have twice the credit enhancement of the super senior triple-A bond and four times the credit support of the straight triple-A bond. After running the structure through hypothetical scenarios, UBS determined that the super duper senior Alt-A hybrids offer great value relative to prime jumbo super senior hybrids and agency hybrids, and virtually eliminate the credit component.

Some market participants, however, were not as delighted with the prospect of the new structure. "I don't think it will be anything big," one trader said. "I don't think anyone is overwhelmed by it."

Every day the news gets stranger and more desperate. It's hard to keep up with it all.

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