Jimmy Lathrop

Risk/Reward Analysis Makes Financial Insurers a Buy

Lets use a hypothetical - if we assume that most, if not all, of these companies income derived from insuring Mortgage Backed Securities, and hypothetically speaking, if the market lost their taste for MBS, or, if Congress woke up and saw that they were too dangerous by generating income at the expense of the underlying homeowners mortgages, would that change your opinion of these stocks?

Or how about this - lets say the shareholders of junior tranches brought a shareholder's derivative lawsuit against a trustee of a mortgage backed pool, and the trustee turned to the insurer to pay out on its obligation and the insurer refused. Or lets assume that they did pay out but that started a run on the insurers - would that change your opinion of these companies stock?

It's not enough that you promote the upside of these companies. A balanced article would disclose the downsides as well.

Restoring Credibility to Ambac and MBIA

I am taking no position as for or against the views proposed in the article. The only way we will know if these companies are fire resistant is when (not if) they are tested by defaults. Sinking home prices will mean lower revenue for municipalities which will result in higher rates of defaults. The only question is whether these defaults are filled with gunpowder and napalm. Either way, I'm not holding it in my hand.