FINANCIAL MELTDOWN - Insurers Face "Massive Losses"
Make way for the fifty foot wave.
MBIA, Ambac Losses Will Be `Massive'
By Christine Richard
Nov. 6 (Bloomberg) -- Bond insurers including MBIA Inc., Ambac Financial Group Inc. and ACA Capital Holdings Inc. face "massive losses" over the next few quarters that could test their ability to raise new capital, Egan-Jones Ratings Co. said.
MBIA may lose $20.2 billion on guarantees and securities holdings, Sean Egan, managing director of Egan-Jones, said on a conference call today. ACA Capital may take losses of at least $10 billion; New York-based Ambac may reach $4.3 billion; mortgage insurers MGIC Investment Corp. and Radian Group Inc. may see losses of $7.25 billion and $7.2 billion, respectively, Egan said.
That's $50 BILLION in LOSSES for those five, alone!
"There is little doubt that the credit and bond insurers face massive losses over the next few quarters and many will be capital challenged," Egan said.Bond insurers have guaranteed billions of dollars of AAA rated collateralized debt obligations backed by low investment-grade rated portions of mortgage bonds. Some of the debt, largely home loans issued in 2006 and early 2007, has been defaulting at record paces. The losses are threatening the AAA ratings of some of the companies' assurance units.
"The refrain that there is little risk because a security has a high rating is no longer valid," Egan said.
The Egan Jones loss estimates include existing guarantees, mainly on securities that rely on mortgages for repayment, and on securities holdings, he said. Haverford, Pennsylvania-based Egan Jones is paid by investors to rate debt, rather than by issuers.
Calls to Liz James, a spokeswoman for Armonk, New York-based MBIA, Peter Poillon, a spokesman for Ambac, and Adam Willkomm, a spokesman for New York-based ACA weren't immediately returned.
Market Isn't Stupid
Fitch Ratings said yesterday it will spend the next six weeks reviewing the capital of Ambac, MBIA, Financial Guaranty Insurance Co. and CIFG Guaranty to ensure they have enough capital to warrant an AAA rating. Any guarantor that fails the new test may be downgraded within a month unless the company is able to raise more capital, New York-based Fitch said in a statement.
It will be difficult for the insurers to raise capital given the size of losses compared with the companies' public shares, Egan estimates. In the case of ACA, Egan said the expected loss was 100 times the $122 million value of its outstanding shares.
That's 12 billion dollars.
Moody's Investors Service and Standard & Poor's will downgrade the ratings only after problems have become more obvious, Egan said. He dismissed the argument made by insurers that mark-to-market losses won't turn into realized losses.
"You can't say that the whole market is stupid," said Egan. "In my opinion you can assume a slight discount for market dislocations, but it has gone far beyond that."
Potential Failures
Morgan Stanley analyst Ken Zerbe in a Nov. 2 report downgraded the financial guarantee industry to "in-line" from "attractive," and questioned whether bond insurers will be able to survive mounting losses on CDOs and other mortgage-related securities that the companies guarantee. CDOs repackage bonds, mortgages and other assets into new securities, and then use the income from the underlying debt to pay investors.
In other words, they're second generation blood suckers.
Egan said he expected a few companies could fail and that would cause the federal government to step in to prevent or delay more failures.
This is where I draw the f*cking line!!!
HELL NO! LET THEM F*CKING FAIL!!!
The bond insurers have guaranteed more than $1 trillion of bonds issued by U.S. cities and states as well as bonds and securities backed by mortgages, credit cards and other assets, and the guarantee allows borrowers to use the insurers' AAA rating.
This is totally SURREAL.
Do you realize what this means???
These insurers insure lenders against the risk of our own goddamn state and local governments defaulting and now they want the federal government to step in and MAKE US PAY FOR OUR OWN DEFAULTS!!!
That means we pay for (1) THE LOAN, (2) THE INTEREST, (3)THE PRICE OF INSURANCE FACTORED IN, AND (4)THE COST OF BAILING OUT THE INSURER WHEN WE DEFAULT!
Ambac on Oct. 24 reported its first net loss after reducing the value of subprime mortgage-linked securities it guaranteed by $743 million. A day later, MBIA reported its first-ever quarterly loss because of $342.1 million in pretax writedowns, mostly on a drop in the price of mortgage-related securities. ACA, which is scheduled to report third-quarter results tomorrow, had a second- quarter loss because of markdowns.
Radian, the third-biggest U.S. mortgage insurer, reported a third-quarter loss of $703.9 million after being roiled by claims from failed home loans. Milwaukee-based MGIC, the largest U.S. mortgage insurer, posted its first quarterly loss in 16 years and said it won't be profitable in 2008 as foreclosures increase.
Unbelievable.
When Jackson called them ,a den of vipers, he was being waaaay too kind.
That is, calling in precious metal confiscation to hoard most of the platinum, gold & silver to stack in the federal vaults after signing EO 6102 during the Great Depression period in 1933 [analysis].
Let the banks and insurers fail because it's the nature of the volatile laissez-faire economics. U.S. government should not bail out because printing even more billions and billions of FRN dollars will expand the credit bubble so gigantic it is bound to burst and smother everything from the underground subway systems & mines to the skycrapers and satellites including the scarcity of sustainable employment, food, energy fuel, ammunition and shelter.
The future collapse will make the Great Depression look like a happy picnic version of The Grapes of Wrath.