Robert Arvanitis

Evaluating Ambac: Intrinsic Value Withstanding Market Volatility

The credit insurance model is over, despite the author's delight in perpetual state budget deficits.

On the muni side, if the business model ever worked, it is now over. The rating agencies can no longer lie - a so-called triple-B muni is in fact a triple-A on the corporate scale. Once rating agencies are forced to end the false distinction between "corporate" and "muni" scales, that eliminates the artificial need for insurance.

On the corporate side, the business model never worked. A small part of the corporate credit spread is for liquidity and traders' capital. Not nearly enough to justify insurance premiums at less than 40% of market spread.

Finally, the author seems to dismiss mark to market. But investors have a right to know. If you can't sell it, it ain't worth much.