Subject: re: fgic break-up

good chat with a reader

Subject: re: fgic break-up.

you call it a good move to split the company in two. how do you think that's going to get past the policy holders who bought policies based on the strength of the whole company. i don't see how this doesn't end up in litigation dead-lock (if it even gets there). the idea takes away any remaining financial foundation for insurance holders on mortgage-backs.

my response

It is going to be lawsuit central.

But the bond insurers don't have a choice. They are bankrupt otherwise because they are going to lose their ratings and then they are toast. So when the alternative is a zero outcome, they might as well play for holding their muni business and dealing with the lawsuits. The regulators want this outcome to protect the muni market. And so the counter-parties will get bought off with some money / equity / whatever from the muni business because their alternative is a big fat zero.

Needless to say I have zero sympathy for either side of this game.

A) investors who bought crap, added a slice of undercapitalized insurance and it is AAA

B) the insurance firm that insured some ridiculous multiple of their equity capital based on models which probably took the last five years of defaults and extrapolated them out.

Just my opinion

will post more if/as it comes.

Posted on February 22, 2008 and filed under Finance.