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jtb3
2 Comments
Why We're Still in the Early Innings of the Bursting of the Housing and Credit Bubbles - And Implications for MBIA and Ambac
It is clear MBIA and Ambac will take losses. However, it is unfair to not calculate the NPV of the losses. MBIA and Ambac will only have to pay out losses over time (in the case of these mortgages, 30 years or less), not all at once. In the meantime, they will be able to use their "losses incurred but not paid" as float for investment just like any other P&C company. Not to mention, they still are due defferred premium revenue. This again will reduce their "net-net losses." Only by calculating the NPV of the return on float, the actual payment of losses, and deferred premium revenue will you come up with an accurate representation. This value is markedly LESS than your and Ackman's gross and net losses in your presentations.
Buffett's Offer: Great for Him, Terrible for Bond Insurers
Mr Tilson - I agree with everything in your post, but I wonder if your short position has now become dead money (for a while at least). If Mr. Buffett's plan goes through, the remaining muni insurance capital at MBI and ABK will be put towards the structured insurance capital. At that point, the insurance commissioner loses his incentive to help municipalities and has much less incentive to help structured finance holders. Even if the ratings agencies downgrade MBI and ABK and/or both go into runoff, there should be enough capital to sustain P&I payments for many years. Possibly even pay a dividend to the holding company. What's the potential liquidity crisis that will BK the parent companies now? Isn't the most likely scenario now a very slow death and not a capitulation?