Posted on 02/13/2008 4:39:52 AM PST by TigerLikesRooster
Investor Warren Buffett offers 800 bln dlr backup to troubled bond insurers
Tue Feb 12, 11:03 AM ET
Billionaire investor Warren Buffett on Tuesday said he offered to reinsure 800 billion dollars in municipal bonds backed by three insurers hard hit by the US mortgage and credit crunch.
Buffett discussed his offer to bond insurers Ambac Financial Group, MBIA Inc. and Financial Guaranty Insurance Co. during a telephone interview with the CNBC business television network.
Buffett said he had sent that offer to the three bond insurers last week, and that he was giving them 30 days to find a better deal.
He said one bond insurer had turned down the offer and the other two had not responded. The so-called "oracle of Omaha," known for his savvy investments, did not identify the company that rejected his offer.
Bond insurers have been forced to take massive writeoffs on corporate bonds and complex financial structures involved in the subprime, or high-risk, mortgage crisis that began to roil markets in August.
Buffett's offer would reduce uncertainty in markets over the possibility of downgrades of bond insurers such as Ambac and MBIA and allow a speedier recovery from the subprime-related credit problems.
Buffett's holding company Berkshire Hathaway Inc. includes insurance subsidiaries GEICO Auto Insurance and Berkshire Hathaway Life Insurance Company of Nebraska.
In late December, Buffett announced the investment vehicle would enter the municipal bond reinsurance sector.
The Omaha, Nebraska-based Berkshire Hathaway took a 3.0 percent stake in Swiss Re of Switzerland, the world's largest reinsurance group, in late January. Swiss Re expects heavy losses due to its exposure to the US subprime mortgage crisis.
Ping!
No problem here folks, everything is fine and okay. The economy is strong, and no one has ABSOLUTELY nothing to worry about!. Congress can always stimulate the economy again with another 40 billion dollar rebate. Drive by, and keep traffic moving, no rubber necking at this little crash and dent incident on the economic highway.
Yaeh right, no problems....hand out some more double-taxed borrowed money.
Gee Warren, don't go all wide and crazy on us. I can only recall three times in the last zillion years that any munis came close to going belly up (NY, WHOOPS and Orange County).
Since when has there been a crisis in the muni market? Or maybe a bunch of towns have been doing sub-prime lending.
Sheesh.
Timing this correctly is a once in a lifetime opportunity.
2) With the monoline insurers teetering, you don't want to see the municipal bond market (or issuance) collapse.
But I ain't gonna play bridge with the guy....
Good point... here’s Warren offering to step in and “save” the part of the portfolio that doesn’t need any saving. As far as the sub-prime toxic stuff is, Warren is too smart to touch with a 10-ft. pole.
But Warren comes off looking like the hero he wants to be remembered being. Thanks but no thanks, you slimey liberal.
As I understand it, many (most?) municipalities are not AAA rated. Not a big deal for individual investors, perhaps, but a big deal for many institutional investors. The bonds would bear the credit rating of the monoline insurers. Thus, so long as the monolines were AAA rated, then pension funds and other trusts that require AAA ratings to invest could purchase and hold the munis. Take away the monolines and the institutional investors have to dump munis affected, and cannot buy most new offerings. Which is really bad for the muni market.
I didn't find an interesting article on this topic at Bloomberg:
http://www.bloomberg.com/apps/news?pid=20601087&sid=atiav4wmsWnU&refer=home
Of course the monoline insurers are going to fight it. If Buffett gets all of the municipal bond business, they are dead in the water.
"Wasted away in Morgaritville"?
No wonder his net worth is larger than mine.
I'm not a student of Buffett's activities, so I'm not aware of any instances where he has allowed his political preferences to get in the way of a solid money-making proposition. You can make a very good living insuring municipal bonds, if you have the capital, but it isn't very sexy. I suspect Buffett will be happy making the money.
“....and the deflationary spiral will kick into hyperdrive.”
How exactly does that work?
"How exactly does that work?"
In our fractional reserve system, for every dollar of debt that is defaulted upon, 8.65 dollars of money supply are destroyed.
thanks for the stat!
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