Dinallo Comes Down on Monoline Bears

 |  Includes: AMBC, MBI
by: Tom Brown

It sounds like Eric Dinallo, the head New York State Insurance regulator, has pretty much had it with Bill Ackman and his pals:


Rumours that can destroy the stock price of banks and investment banks have been the focus of the media and have now attracted the attention of regulators. But what about rumours that cast doubt on the solvency of insurance companies that are equally important to the New York economy and global capital markets? All financial services companies – banks, investment banks and insurance companies – rely on market confidence. . . .

This is why New York State enacted a law in the 1930’s providing for civil and criminal sanctions for spreading false rumours or making statements “untrue in fact” about an insurance company’s solvency. . . .

Recently, some individuals have asserted that some of the bond insurers are insolvent – a far more serious, far reaching and risky allegation than claims that the insurer’s holding company stock is overvalued. Publicly questioning the solvency of these companies is of a completely different order. . . . [Emph. added]

You don’t need to spend much time on The Googles to confirm that insolvency is precisely what Ackman has been predicting for the guarantors, most recently on June 18. I won’t rehash the whole guarantor debate here, but will only note that neither the rating agencies nor Dinallo dispute the fact that most companies have ample claims-paying ability under even a very severe mortgage-loss scenario. The main reason that so many people seem to believe the industry is insolvent is that Bill Ackman and his ilk have been beating the drum on the issue for so long. Good for Dinallo for bringing the hammer down on them.

Tom Brown is head of Bankstocks.com