Investor Warren Buffett offers 800 bln dlr backup to troubled bond insurers

AFP ^ | 02/12/08

[TigerLikesRooster]

Ping!

[rovenstinez]

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.

[RSmithOpt]

FYI: This is in an 'good economic area':

Home foreclosures in the Raleigh-Cary metropolitan market surged more than 122 percent in 2007 from 2006

Yaeh right, no problems....hand out some more double-taxed borrowed money.

[Proud_texan]

"offered to reinsure 800 billion dollars in municipal bonds"

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.

[Vet_6780]

As soon as NY State regulators force the munis to be cut free from the failed CDOs, the monolines will get downgraded and the deflationary spiral will kick into hyperdrive.

Timing this correctly is a once in a lifetime opportunity.

[DeaconBenjamin]

1) Presumably Berkshire Hathaway gets income for such assurances.

2) With the monoline insurers teetering, you don't want to see the municipal bond market (or issuance) collapse.

[Proud_texan]

No question Buffett is a lot richer than I am but I still not getting it. I know that Ambac has been downgraded and there was some ink that this would make it more difficult for muni issues but I don't see why unless muni investors only buy them because of the insurance.

But I ain't gonna play bridge with the guy....

[ReleaseTheHounds]

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.

[DeaconBenjamin]

I don't see why unless muni investors only buy them because of the insurance.

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.

[Proud_texan]

Interesting, thanks for passing that along. I don't know what the bulk of the ratings are but while I don't buy individual bonds too much any more (they have tended to be called far too early in the last couple of years) insurance has never been a factor for me. In fact I figured I ended up paying for it.

I didn't find an interesting article on this topic at Bloomberg:

http://www.bloomberg.com/apps/news?pid=20601087&sid=atiav4wmsWnU&refer=home

[DeaconBenjamin]

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.

[RSmithOpt]

Very true...then Buffett will be able to further injure the economy in some ways.....

"Wasted away in Morgaritville"?

[Proud_texan]

Yeah, it's making more sense to me now, he's trying to cherry pick the "creamiest" part of the business (per the Bloomberg article) and look like a hero in the process.

No wonder his net worth is larger than mine.

[DeaconBenjamin]

then Buffett will be able to further injure the economy in some ways.

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.

[RSmithOpt]

I agree completely....injury is in reference to 'capital preservation with a small return' sources being sucked up by a large investor. Not a bad thing necessarily, but, then again, if the economy is to absorb the losses from the fraud in the housing sham, then the economy should have the opportunity to preserve some of its worth in that too can be spread out between investors.Get my drift?

[mo]

“....and the deflationary spiral will kick into hyperdrive.”

How exactly does that work?

[PeterPrinciple]

Since when has there been a crisis in the muni market? Or maybe a bunch of towns have been doing sub-prime lending.

---

If a municipality can’t collect it’s taxes from foreclosed homes, I think they might be in trouble.

[Vet_6780]

"“....and the deflationary spiral will kick into hyperdrive.”

"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.

[mo]

thanks for the stat!