“Short and Distort” Crowd Doesn’t Want You to Read This
Insolvency risk low for most bond insurers-Moody’s
Insolvency risk is low for most bond insurers, making it unlikely that they would have to make large payments to terminate credit default swap contracts, Moody’s Investors Service said on Wednesday.
Most bond insurers have capital cushions well above minimum levels, and for struggling insurers, regulators are unlikely to take preemptory action that might worsen their financial condition, Moody’s said in a report.
July 10th, 2008 at 11:46 pm
doesn’t match the rumours about Ambac under-capitalized
July 11th, 2008 at 2:55 am
It doesn’t tie out with MBIA not downstreaming their funds either. Nor does it tie out with the downgrades thus far, the implicit pricing of these stocks to junk, etc…Finally, a reliance on the argument that regulators won’t push them over the cliff because of the consequences is a very sad investment thesis.
July 11th, 2008 at 4:00 am
SS:
MBIA doesn’t need to downstream the funds, they are de facto in run-off mode and don’t need more capital given they are not writing any new business. The monos aren’t triple A that much is clear but that doesn’t mean they are insolvent.
July 11th, 2008 at 11:35 am
The difference between insolvency and de facto run-off mode only has meaning to the sellers of CDS as far as I can tell. The business is de facto toast. If the sole reason for not putting these companies out of their misery is fear of financial contagion I still don’t see much of an investment thesis here — much less any point to saying their “not” insolvent. Moody’s is just playing cheerleader to keep the house of cards from tumbling. To me that seems to be the kind of behavior that got us here in the first place.
July 11th, 2008 at 2:36 pm
I agree there is no investment thesis here, rather we have a cheap option, that could get more valuable if solvency is maintained. We are in a “disaster magnification” phase, everything is cheap, taking a basket of cheap options will pay off over time, it takes only one or two survivors to pay for the losers. The outcome of one particular bet say on Ambac is irrelevant.
July 11th, 2008 at 3:54 pm
Well,
Personally I think all of these guys are toast — it’s essentially a binary situation. As a result, there isn’t any real diversification of bets. But I understand your reasoning and for sure no one gave me a monopoly on market wisdom.
July 12th, 2008 at 1:58 pm
Moody’s ratings have been so off for so long related to the bond insurers, why should anyone find them credible now?