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Merrill Lynch will provide financing to the purchaser for approximately 75% of the purchase price. The recourse on this loan will be limited to the assets of the purchaser. The purchaser will not own any assets other than those sold pursuant to this transaction.

This belief is rooted in the fact that not only have we never naked shorted -- our prime broker I'm sure wouldn't allow it, even if we wanted to -- but in nearly ten years in this business, I've never known of or even heard of a case of naked shorting.

The entire 14-page report is available here. 

MBIA’s $900 Million: To Downstream or Not To Downstream?

Tom’s article was triggered by one of my emails that questioned MBIA’s recent announcement that because the “landscape has changed”, it would not, contrary to its previously announced intentions, take $900 million of equity capital that it had raised and downstream it from its public holding company to its insurance subsidiary.  Tom argues that MBIA’s

Gretchen Morgenson’s “analysis” of Fairfax was completely wrong, but at least she attempted to examine Fairfax’ exposures, balance sheet, future prospects, etc. In contrast, Story’s article didn’t even attempt to address the important issues: instead, it was tabloid journalism at its worst (with an inane boxing marquee graphic to boot!).

A) Many short plays are enhanced through rumor and innuendo spread by those self-same shorts. Needless to say, these whispers are sometimes unfounded but can do real harm to a company’s share price and the company itself.

Borders Group has been a terrible investment so far, as the stock has suffered from a weak macro environment, negative investor sentiment and numerous management missteps. Things got so bad recently that the company faced a liquidity crunch and was forced to do a dilutive emergency financing with its largest shareholder, Pershing Square Capital Management.

What Went Wrong at GE?

I won't go into detail because all the punditude doing that... But what I haven't heard from the punditude is the fact that GE is known for having the most managed earnings stream on the street... this never happens with them. So what changed all of the sudden? How much did things slow? Remember this is a company where insiders were buying hand over fist 1-2 months ago... So how sharply did things slow that last month?

And with respect to the punditude... man, the spin out there... GE guidance/orders etc. stunk across the board ex infrastructure (inflation) -- in fact IMO order book looked much worse than what their numbers show (except for businesses exposed to inflationary trends as their revenue source IE infrastructure)...but as is typical of the market, somehow GE is "company specific"...here is an example of some of the spin:

Recent stock market moves have made anyone short financials look pretty dumb, but nearly every piece of data (with one notable exception -- see below) indicates that this is yet another dead cat bounce, to be followed by the fundamentals getting even worse, dragging stocks exposed to this mess down with it.

There will also almost certainly be rumors galore about Buffett looking at buying Bear, which is a hoot. He wouldn't go within 1,000 miles of this black box.

In summary, today we are only seeing the tip of the iceberg: an enormous wave of defaults, foreclosures and auctions is just beginning to hit the United States. We believe it will get so bad that large-scale federal government intervention is likely.

Ambac's Anticlimax
By ROBIN MORONEY, WSJ

NOT!!!!

Here's what happened: everybody -- the ratings agencies, regulators, big banks, etc. -- are petrified (probably with good reason) about the consequences if MBIA and Ambac lose their AAA ratings, so there's a big wink-and-nod going on here. The companies raise enough money to give the ratings agencies some cover to reaffirm the AAA rating, the ratings agencies do so, and this buys some time (not much though -- in 60 days or so, they have to report Q1 earnings and if you thought Q4 was bad, wait until you see Q1!).

Though a bit more time is valuable -- you never know when Congress might bail out millions of mortgages -- this kabuki dance is likely to be meaningless in the end because these companies are unlikely to be able to write much new business and, more importantly, are likely to incur tens of billions of losses.

Re. the former, I've heard from people in the market that bonds insured by MBIA trade at a 15 bp discount to bonds insured by nondistressed bond insurers (like Berkshire). To compensate for that (and because premiums are front-end loaded), MBIA would have to charge a 50 bp lower premium, which is enormous given that the total premium for munis typically ranges from 30-80 bps. No banks or other institutions will tell you this, however, because they're loaded to the gills with MBIA-wrapped bonds and want to prop them up...

To get an idea of how utterly corrupt the ratings agencies are, consider that a year ago, S&P said MBIA would have zero losses from its subprime exposure. Then in July, it upped this to $64 million. Then in December, it said $5.5 billion. And earlier this week, as part of its report reaffirming MBIA, it now says $9.5 billion (the media hasn't picked up on this number yet) -- but it still maintains the AAA rating!!! But the market isn't fooled one bit -- here's TheStreet.com's Doug Kass yesterday morning:

Enormous bubbles don't burst cleanly, with prices returning to trend line. A study by GMO showed that in every bubble in history, going back to tulib bulbs, the bottom was reached far below trend line.