(snip)"Some of the largest bond insurers are are currently unable to cover the losses that are piling up from the meltdown in mortgage-backed securities (MBS) and collateralized debt obligations (CDO). Their business model is hopelessly broken and they will require an immediate $143 billion bailout to maintain operations. The largest of the bond insurers is MBIA.
Stock analyst Michael Lewitt, quoted in Bloomberg:
"MBIA's total exposure to bonds backed by mortgages and CDOs was disclosed to be $30.6 billion, including $8.14 billion of holdings of CDO-squareds (eds note; pure garbage). MBIA was being priced as a weak CCC-rated credit when it issued its bonds last week; it is now being priced for a bankruptcy. MBIA's stock, which traded just under $68 per share last October, dropped another $3.50 this morning to under $10.00 per share.
Barclay's estimates that the investment banks alone are holding as much as $615 billion of structured securities guaranteed by bond insurers. If the insurers default, hundreds of billions will be lost via downgrades.
So, in practical terms, what does it mean if the bond insurers go under?
It means that the system will freeze and the stock market will crash. Here's how TV stock guru Jim Cramer summed it up last week in an interview with MSNBC's Chris Matthews:
But, Chris, there is something I would urge all the candidates to think about and our Treasury Secretary, which is that there are a group of insurance companies which insure all these bad mortgages and, Cris, I think they are all about to go belly-up, and that will cause the Dow Jones to decline 2,000 points. They've got to be shut down and the insurance given to a New Resolution Trust. This is going to happen in maybe two or three weeks, Chris, it going to on the front of every newspaper and no one in Washington is even willing to admit it.
Chris Matthews: So who are you including in these mortgage companies that are going to go belly-up; give me a description?
These are MBIA and Ambac remember the companies that Merrill Lynch and Citigroup wrote down a lot of stuff the other day? All these companies are relying on insurance to save them. The insurers don't have the money. There's also personal mortgage insurance; that's PMI, is one company; MGIC is another. Chris, I am telling you that these companies do not have the capital to make good. And when they do fall, and I believe it is when---if the government does not have a plan in action; you will not be able to open the stock market when they collapse. No one is even talking about the fact that these major insurers, who insure $450 billion of mortgages are all about to go under."(snip)
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