Bankers, Bond Insurers Suing Each Other 12 comments
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A series of articles in the Financial Times chronicles a nasty spat between Wall Street banksters, and their former friends the bond-insurers, with the most recent update out Friday.
The first “volley” was fired by the bond-insurers. Ambac (ABK) sued JP Morgan (JPM), alleging at the least negligence, and at worst, fraud. Then MBIA (MBI) sued Merrill Lynch, on similar grounds – to try to avoid being forced into pay-outs on $5.7 billion of failing CDOs (“collateralized debt obligations”).
Meanwhile, there are increasing reports of bond insurers defaulting, and failing to make insurance pay-outs on some of these failed (and fraudulent) securities, such as the example of a bond-insurer which now goes by the name of Syncora. Interestingly, CDOs with “insurance” are being discounted more heavily than CDOs without “insurance”.
In part this is due to the fact that the market is increasingly viewing so-called “insurers” as empty shells, and thus the “insurance” they are providing is essentially worthless. On top of this, bond-insurers are “rights holders” with many of these securities, who can potentially force liquidation of assets – resulting in huge losses on assets that the U.S. financial crime syndicate has refused to write-down to realistic valuations.
Naturally, the banksters are fighting back. Their current target is MBIA, who recently split itself into a “good” bond-insurer, which only handles municipal bonds, and a “bad” bond-insurer – which is insuring fraudulent, Wall Street feces. What has enraged the banksters is that, in the process, MBIA diverted roughly $5 billion of its waning capital into the “good” unit.
Essentially, this leaves the “bad” unit with countless, potential “insurance” obligations – but no money to make good on any of these losses. In other words, the “bad” unit was intended to go bankrupt, leaving the fraudulent banksters holding billions in losses from their own fraud schemes, and no ability to recoup those losses through so-called “insurance”.
What's hilarious is that this is precisely the same scheme which has repeatedly been suggested as a “solution” for the banksters, themselves. None have yet followed through on this plan, presumably in fear of getting into exactly this scenario – where “assets” are simply abandoned, resulting in a chain-reaction of losses between these heavily-interconnected partners in crime.
Now the banksters are openly alleging that MBIA's split into two entities was a “fraudulent” transaction – done solely to evade its legal obligations under its “insurance” contracts. There is obviously some merit to the accusation, since this is precisely the motivation of the banksters themselves when they pondered the same scheme.
On the other hand, allegations of fraud made by the bond-insurers against the banksters has at least as much merit. It also provides MBIA with an additional line of defense: that it was “forced” into two units precisely because it was facing huge losses derived from the fraudulent operations of Wall Street.
All observers are expecting many more law suits, as these parasites now all attempt to blood-suck each other.
Combined with all sorts of other civil suits aimed at Wall Street, from towns, cities, states, schools, hospitals, bond-holders, shareholders, and various other victims, even if the U.S. financial crime syndicate can mooch enough trillions to avoid bankruptcy over the short term, this simply leaves more “meat on the bone” when judges start to make their damage awards against these criminals.
It must be noted that none of these fraud-factories has set aside any capital to meet the inevitable pay-outs from this tidal wave of litigation. This means that the best-case scenario is that Wall Street spends the next decade or so with a huge, “cloud of liability” hanging over it – driving even the most foolish investors away. The worst-case scenario is that hundreds of billions in damage awards (if not trillions) drives the whole sector into bankruptcy, as even the bankster-servants in Congress are unlikely to be able to misappropriate $100's of billions in additional hand-outs to pay off Wall Street legal judgments.
Who knew the day would come when people would actually begin to cheer on those rapacious piranha who go by the title of “litigation lawyers”?
Disclosure: I hold no position in any U.S. equities.
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This article has 12 comments:
The Fed split up Bear Stearns into the good and bad parts. It then gave JP Morgan $30 billion and all the good assets and put all the bad assets into Maiden Lane LLC. Now our Treasury is buying these "assets" from the Fed.
FDIC coudn't afford a Wamu failure so they wiped out Wamu employees (over 10k got laid off by JPM), shareholders and bondholders. It split up Wamu into good and bad parts. It then sold the good part to JP Morgan for $1.9 billion and voided contracts on Wamu landlords in NY since JPM didn't want any branch there. Yes we know JPM had to write down $30 billion but it got $25 billion TARP from Paulson and $40 billion bond guarantee from FDIC's TLGP.
What insurance companies need to pay anything now? They will all follow these brilliant precedents.
If another hurricane hits, too bad.
If you are in a car accident, too bad.
I am not sure if they will go so far as to take your house and car away and sell them cheap but who knows?
One benefit they don't have: if these insurers are having money trouble, they don't have tax dollars to back them up.
*imho*
*imho*
Jeff, I have not seen any of these reports. Which insurer (MBI, ABK, RDN, etc) has defaulted on any coverage?
On May 17 09:16 AM johnny inca wrote:
> >>Meanwhile, there are increasing reports of bond insurers defaulting,
>
>
> Jeff, I have not seen any of these reports. Which insurer (MBI,
> ABK, RDN, etc) has defaulted on any coverage?
And just offstage in the wings is the Fed bearing the big bucks of sweep up, at the expense of the Audience!---enjoy the show.
"Why can't we all just get along?"
All this does is feed the shorts and serves no investor any good.
I dare anyone show me the actual report or SEC filing.
On May 17 09:16 AM johnny inca wrote:
> >>Meanwhile, there are increasing reports of bond insurers defaulting,
>
>
> Jeff, I have not seen any of these reports. Which insurer (MBI, ABK,
> RDN, etc) has defaulted on any coverage?
On May 17 11:10 AM Jeff Nielson wrote:
> Johnny Inca, the defaults have been among the smaller players in
> this market. You can get more info following the link in the commentary.
>