Michael Demaray

The Monolines Need $200 Billion? No Way

Excellent article Tom. Your perspective on this subject where misunderstanding is frequently repeated as fact is appreciated.

Moody's Affirms Ambac, MBIA Ratings - Losing Any Last Shred of Credibilty

I think you also have to account for the fact that the CDSs are structured as "Pay-as-you-go". In other words, the monolines (at least Ambac), only has to come up with the periodic principal and interest payments. As such, they have the duration of any defaulted security to produce liquidity. This is one point that I believe William Ackman's argument misses. It is dangerous to think of the world in normative terms-- how one thinks it OUGHT to be. Whether or not you believe that the monolines should have to produce the cash to cover a security's face value upon default, the fact remains they do not. What is equally dangerous to the monolines at this point is the prospect of the public finance side of their business drying up, whether from municipalities who feel they don't need insurance, or from competition including Berkshire. The public finance side of the business is the lifeblood that will sustain them as the defaulted CDOs mature.