Saturday, February 16, 2008

MBIA & The State of the Bond Insurance Industry.

Here are some details of the recent testimonies before the House Committee on Financial Services, on The State of the Bond Insurance Industry. Thursday, February 14, 2008

Testimony of Mr Chaplin, CFO of MBIA.

Charles Chaplin, Chief Financial Officer, MBIA Inc., in his written testimony, hit out at William Ackman (of Pershing Square Capital Management), for his large short position in the MBIA stock. Ackman has claimed that the bond insurers are ‘functionally insolvent’, and has questioned the rating agencies about the AAA ratings assigned to the Bond Insurers. Ackman has voiced his concern about MBIA and other Bond Insurers in many TV interviews, presentations, letters to the Fed & the Treasury as well as his latest testimony.

  • Is it William Ackman’s fault that the bond insurers, chose to insure Structured Finance Products, CDOs and other now toxic derivatives, instead of relatively safe and low yielding (in terms of revenue for the bond insurers) municipal bonds?

  • As per page 106, of the MBIA testimony, Ackman on 23/5/07 claims that the insurance subsidiaries of the bond insurers are effectively insolvent, and then on 23/11/07 claims that the bond insurers are insolvent. If he was wrong, why are the bond insurers struggling to raise capital, even as they deny the need for ANY BAILOUT?

  • What was the methodology employed and analysis used by the Rating Agencies, which concluded that the capital adequacy of the bond insurers was sufficient; thus enabling them to retain their AAA rating?

  • Do Henry Paulson (U.S. Treasury Secretary), Charles Chaplin(MBIA) and Ben Bernanke honestly believe that the Bond Insurers will be able to pay up, in the event of a drastic escalation in defaults?

1 comment:

Anonymous said...

I've been looking for some advice on insurance bonds for a while now, and this has been very helpful, thanks.