Monoline Rescue Plan Round Up

Here are some of the stories on the proposed rescue plan of the monoline insurers (AMBAC, FGIC, MBIA)

Banks pressed to bail-out bond insurers (FT)

Banks, New York Regulator Meet on Bond Insurer Rescue (Bloomberg)

Plan for a Mortgage Buyer Gains Some Ground (WSJ)

Next on the Worry List: Shaky Insurers of Bonds (NYT) 

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What's been said:

Discussions found on the web:
  1. Contrarian commented on Jan 24

    I’m not sure how all the banks plus new york are going to rescue someone like MBIA, who is insuring $1 trillion in bonds on bare equity. ABK is worse off.

  2. Ali Saygin commented on Jan 24

    Can MBIA or ABK get insurance too, possibly from dear friend Warren?

    Insurer gets itself insured. Circle of life.

  3. Justin commented on Jan 24

    The government plan just announced, and the way it is being announced – in a hurry, is scaring the hell out of me. How bad is this economy, really?

  4. I’m With Stupid commented on Jan 24

    Bankers who met with New York insurance regulators to discuss a reported bailout of troubled bond insurers downplayed the meeting’s significance Thursday, with one calling it a “non-event.”
    NY State

    Bankers told CNBC that there was no consensus formed at the meeting and no movement on creating substantial plans for a rescue. Moreover, reports of the meeting may have made a bad situation for the industry worse, bankers said, as a subsequent jump in bond insurer stock prices scared off private equity firms that may otherwise have injected capital into the companies.

  5. Ross commented on Jan 24

    Head for the hills!! The Congress is bi partisan again. A bunch of bi boys and girls will write some more checks on the grandkids account. All is well. Hang on to your wallets!

    Insurance of any kind is acturially based. Your underwriting standards tell you your degree of risk. Sometimes insurance is sold at a loss up front hoping higher investment returns will make up the loss and still yield a profit. All that needs to be restored is confidence. Any type of re insurance will do. Yes it is circular logic. Buying time and just talking about a bailout or Buffet style intervention may work.

    At worst you run down your book of business over decades and write no more insurance.

  6. Stuart commented on Jan 24

    Russ Winter had some good comments on this plan too.

    “Logically, if big banks put in new capital they are in effect self-insuring, and acknowledging the old insurance is defunct. Let’s call this what it really is, a “financial perpetual motion machine”. The problem of course is that insurance on $2 trillion in other people’s debt would also be an obligation/liability. This concept is the diametric opposite theory of what drives “Tosser” and Rat Line economics, which is having “other people” back stop you. So the notion that these big banks will do this in a serious way is ludicrous. Oh sure, they may offer a small tip (through shills most likely), but it will probably amount to about as much relatively speaking as what my Winter Watch’s tip jar gets (that being hamburger and beer money). Interestingly to avoid the impression of self insurance, the news story had this little Ministry of Truth smoke and mirrors gem in it.

    People familiar with the matter said the specifics of a possible capital infusion had yet to be decided, but contributions would not necessarily be based on how much exposure each bank has to bond insurers.”

  7. SuperStar commented on Jan 24

    Life is risk. Insurance is for pussies.

    Let the monolines rot in hell.

  8. Eric Davis commented on Jan 24

    who thinks paulson looks like lurch from the addams family?

  9. W.Edwards commented on Jan 24

    In my view, it’s a choice of how you want to take your lumps. You can either

    (1) Not support the venture, let the bond insurers get downgraded and take a hit on your investments (which by the way would be subject to significant selling pressure from institutions that have mimimum credit quality guidelines for their investments).

    …or…

    (2) Everyone coughs up some money up-front that will likely offer negative real returns since a certain proportion of that capital WILL be lost through claim payments.

    Option 2 is more preferable from a market POV but not everyone will fair equally under the plan. You pretty much need full compliance from the investment community roughly proportional to their potential exposure for this to work. I just don’t see this happening!

  10. W.Edwards commented on Jan 24

    In my view, it’s a choice of how you want to take your lumps. You can either

    (1) Not support the venture, let the bond insurers get downgraded and take a hit on your investments (which by the way would be subject to significant selling pressure from institutions that have mimimum credit quality guidelines for their investments).

    …or…

    (2) Everyone coughs up some money up-front that will likely offer negative real returns since a certain proportion of that capital WILL be lost through claim payments.

    Option 2 is more preferable from a market POV but not everyone will fair equally under the plan. You pretty much need full compliance from the investment community roughly proportional to their potential exposure for this to work. I just don’t see this happening!

  11. Steve Barry commented on Jan 24

    Bank of America is in a steep decline over the last few minutes and is leading market lower…I don’t see any news yet

  12. STS commented on Jan 24

    Seems to me that Federal action to euthanize the monolines (close them down and create a fund to pay a fixed fraction on any claims that come in) would be far superior to the “stimulus” package now in preparation. This would directly address the key “falling dominos” problem: a credit-deflation process whereby cascading counter-party rating downgrades and GAAP-mandated asset write-downs erase many years of credit creation.

    If we’re sitting in a leaky boat, would you rather plug the hole? Or issue everyone a spork and have us all start bailing? A bipartisan stampede in DC is fumbling around looking for the sporks.

    Think, everybody! What did FDR do during the banking crisis of 1933? Ever heard of FDIC?

  13. larry commented on Jan 24

    Paulson looks like a pinball or closer to the truth an 8 ball.

    How telling is it that Kirk (R. Il.) is calling for a new federal agency to purchase mortgages? Or to be more specific, a rebirth of a New Deal entity that was disbanded in 1951. See today’s WSJ for details. The AEI, not a bastion of interventionist thinking, is also in agreement. When you see such thinking from a diverse group of politicans, it mkes one pucker up quite a bit. In fact I’m so puckered up that you couldn’t pull barb wire out of my butt with a bulldozer

  14. TM commented on Jan 24

    So, yet again, the average person is gonna get screwed while large corporations get free money (bailouts) at our expense.
    *sigh*
    This ISNT how free markets are supposed to work.

  15. Sean commented on Jan 24

    I read that there is a proposal to increase FHA loan cap to 125% of local median price??

    Is it a proposal, or is it a done deal already with the stimulus package?

    It would be crazy to set the 125% limit, since this will encourage more run-away price, and unfairly put all resources into high price area.

    If people are willing to pay for $500K for a crap in California, then other poorer states should be held liable to such speculation. I say $417K fixed is a fair game, so if a homeowner is truely inspired to go California, he choose to pay the price.

  16. Adam Butler commented on Jan 24

    Any discussion of this proposal must address both the merits of the plan and the mechanics of the plan.

    Steve Barry effectively articulates the merits of a federal bailout of the monolines above. I would add that, given the Fed’s precarious position – caught between strong global inflation dynamics and plummeting U.S. asset prices – a bailout of the monolines would attentuate the crisis of confidence that is crippling global credit markets without dramatically expanding liquidity conditions. A bailout of the monolines is a surgical strike at the epicenter of the financial crisis. Alternatively, more Fed rate cuts and auctions are the equivalent of chemotherapy and radiation to treat a tumor. The patient may get better, but there are many lasting side-efects.

    As to the mechanics, I also defer to Steve Barry’s allusion to the creation of the FDIC. This situation is far more complicated, but the principals are the same. In addition, the FDIC plays an oversight role, which may not be such a bad thing to introduce to the field of credit insurance.

  17. Pat Gorup commented on Jan 24

    Yes and I heard that they are going to allow Freddie and Fannie to take non-conforming loans up to $625K so there’s your bailouts for the homeowners trying to get out from ARMs. Of course this is just more taxpayer money which will result in a larger deficit down the road..especially when you add in inflation. Oh yeah, this is going to be deflationary, I forgot. lol The only deflation that I see is in credit (that’s not such a bad thing considering how well we’ve mastered its use so far) and houses (which are overpriced). So in the end the FED will go down guns blazing by greasing the economy in an attempt to stave off deflation and create inflation. And if they’re unsuccessful and out of ammo can they then raise rates in a depression? Ask Japan.

    “who thinks paulson looks like lurch from the addams family?” And in him, Bush found someone who is worse at speaking than he is.

    As to the fiscal stimulus plan, I thought I heard numbers of $800-$1600 when it was first bantered about. Now I’m going to get $300…hey I can now buy that condo that’s a little closer to the ocean. Please, don’t bother.

    I see Mister Softy is up after hours. Before anyone gets too excited remember that they started buying their own stock when it was at $25 for about three years.

  18. VJ commented on Jan 24

    First Place Boss Says Midwest Markets In Recession

    Markets in which First Place Financial Corp. operates are in an economic recession, the financial company’s chief executive said in reporting a $3.1 million loss for its second quarter. Still, company President and Chief Executive Officer Steven R. Lewis reiterated in a conference call with analysts Wednesday he expects the company to return to profitability in the third quarter ending March 31.

    Lewis said the bank is being affected by markets where “the supply of homes is clearly exceeding current demand. Even though it might not meet the definition the economists use, we believe that the markets we operate in are experiencing a recession.”

    Lewis noted the result is a significant rise in mortgage delinquencies, foreclosures and ultimately the properties landing on the bank’s books. The oversupply of homes depresses selling prices, cutting the value of the homes the bank owns.
    .

  19. BigDog commented on Jan 24

    Let the monolines die a natural death!! This is capitalism, not high school.

  20. matt commented on Jan 24

    Adam Butler: “A bailout of the monolines is a surgical strike at the epicenter of the financial crisis.”

    More like and insulin injection in a type 2 diabetic.

    Sorry Charlie – the epicenter of the current financial crisis is a credit bubble. In this case, the credit bubble caused homes (and other assets) to appreciate much faster than incomes.

    The real medicine will be for assets to fall to a level where recent college graduates can afford to pay a mortgage on one of the costs AND have a social life.

  21. donna commented on Jan 24

    I say they ought to force the bankers, brokers, and the rest of these clowns who have made billions the last few years to sell all of their assets and give it back before we give them another dime.

    I will never, ever deal with a bank again. We’ve done most of our business with credit unions the last 20 years, and certainly will from now on. Neither one of our credit unions has written a single subprime loan — they considered them “too risky”.

    All those big banks can rot.

  22. jj commented on Jan 24

    BAC shorted as they tried to increase the size of the preferred offering to $13B…. that’s convert-arbitrage , boys and girls

  23. STS commented on Jan 24

    matt:

    “the epicenter of the current financial crisis is a credit bubble”

    The financial crisis is the implosion of that credit bubble. Your statement means roughly: the epicenter of the earthquake is the earth.

    The monoline insurers have been writing protection on garbage while operating on extreme leverage. That amounts to fraud in my view. They should not be “bailed out” — they should be put out of business and their key executives fired and (possibly) prosecuted. Their contracts should be auctioned off to folks like Buffett or other investors who feel capable of valuing them. And the Feds should put a floor under their value (far below par) in order to stop the falling dominoes. The implosion of the credit bubble needs to be slowed down enough to allow the real economy to adjust.

    By all means let’s combine intervention with penalties for the fraudsters — but not intervening would mean your hypothetical college grad has no job to go along with no house.

  24. Winston Munn commented on Jan 24

    If you look closely, you will notice that every proposed action is designed for one underlying priciple: to restore debt expansion.

    What would happen to the economy if the entire U.S. population began to save 10% of its earnings and pay down debts? .

    Why do we continue to salvage and repair a system that requires the enslavement to debt in order to function?

  25. Pat Gorup commented on Jan 24

    “the supply of homes is clearly exceeding current demand.”

    Please remember that homes in foreclosure are in “limbo” from a statistical perspective when numbers are released by the NAR. In other words, the glut is much worse than is being reported.

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