A few years ago I took a pretty hard look at MBIA (MBI) — several hard looks, in fact. One of my stories focused on retroactive reinsurance issues that the company had tried to hide. (It since got dinged on it by regulators.)
In those days, I’d go back and forth with Bill Ackman of Pershing Square Capital Management, who knew this company inside-out and backwards. Nobody knew (or knows) this company as well as he does. (One of his former Harvard professors told me he was, bar none, the smartest student he ever had.)
Bill was sure, back when I was doing my original MBIA articles, that it was only a matter of time before the ratings agencies would have little choice but to pull the company’s coveted Triple-A rating.
I would argue in our conversations (wearing my columnist/commentator hat, which allows me to have opinions) that the rating agencies will never pull the Triple-A plug because doing so could be devastating for the capital and financial markets. (It reminded me all too much of the bull-bear battle in the 1990s over McDonnell Douglas, a defense contractor. The government simply wouldn’t let it fail. In fact, it wasn’t until McDonnell Douglas was absorbed by Boeing (BA) that investors realized just how fragile McDonnell Douglas had become. But I digress…)
“The rating agencies,” I would tell Bill, “are like the kid who has his thumb in the dike. They simply can’t take it out because if they do they’ll pull the whole system down with it.”
Fast-forward to today: The dam is now so full of holes and cracks that the rating agencies don’t have enough fingers and toes to stop what has already started, Triple-A ratings be damned. Time to reset the clock (and I’m not talking about the end of daylight savings time.)
The beat goes on…