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Ambac Collapse: Anticlimax of the Week

The rating agencies were responsible for the original AAA ratings of the loans, CDO's and bonds purchased by financial institutions. This junk was purchased and premiums charged on the basis of these ratings. Therefore, when the ratings turn out to be flawed, it is the likes of Moody's who should be compensating the institutions who bought them on the basis of their 'expert opinion'.
These same agencies who sold junk in the guise of AAA packages then have the cheek to downgrade the institutions who were foolish enough to trust the rating agencies.
The rating agencies are a major cause of the current financial problems, they should be suspended and have their assets seized until the outcome of a full federal investigation has been concluded.

Ambac Collapse: Anticlimax of the Week

May 1 (Bloomberg) -- Billionaire Warren Buffett's Berkshire Hathaway Inc. faces a probe by Connecticut's attorney general for possible conflicts created by owning almost 20 percent of credit ratings company Moody's Corp. while also running a new municipal bond insurer.

Connecticut is investigating the ``clear and direct conflict of interest for Moody's to rate a company owned by such a significant Moody's shareholder,'' Attorney General Richard Blumenthal said in an interview.

Moody's gave its top rating last week to Berkshire Hathaway Assurance Corp., created in December as existing bond insurers struggled to maintain their AAA ratings. A favorable rating for Berkshire by New York-based Moody's, or a lower rating for competitors including MBIA Inc. and Ambac Financial Group Inc., may give Buffett's company an advantage.

Ambac Collapse: Anticlimax of the Week

The recent hijacking of ABK by Moody's and unknown third parties,
however, violates the integrity of the art of trading equities, and I
feel the need to voice my concerns.

There is a story in a stock's movement that often tells who is doing
what, and, in retrospect, for what reasons. In the four months I have
been trading bond insurers, I have developed an understanding of how
institutional traders enter, exit, and manipulate various insurers. It
is this experience, combined with a review of MBI's trading patterns
between the hours of 9:30 and 11:30 am that leads me to believe that
ABK is being manipulated. For what reasons I don't know, but when
upwards of $300,000,000 is being so carefully moved through Ambac's
market, an alarm should be sounded in every trader's mind.

As you all know, (or should know), Short-selling of ABK's shares has
been temporarily banned. Yet, the steady downward movement of trading
in Ambac reflects not the free-fall of MBI between 9 and 11 am, but
the contrived downward pressure that is reminiscent of one of the many
bear raids - scars of which I bare - that has comprised Ambac's
trading activity since July. Traders are effectively selling Ambac
short through the exercise of options puts that allow them to
simultaneously buy and sell shares at progressively lower prices,
without the obligation of having to buy them back. There are problems,
however, with the theory that Moody's et. al. have in mind a goal of
destroying ABK through the depletion of shareholder value.

Unlike Lehman Brothers, Ambac cannot be forced into insolvency by the
ruthless destruction of its market cap. This is a company that has
seen the value of its shares plummet to $1.04; if bankruptcy was to be
declared, it would have happened then. Rather, Ambac can only be
materially effected by the lowering of its ratings, which would
require it to post capital to cover additional obligations. Whether
Moody's is saber-rattling or not, I cannot tell, and for that matter,
don't believe anyone else can either, but in all probability, the Fed,
Congress, and the Treasury will likely push through legislation soon
allowing the government to effectively sanitize the balance sheets of
banks. For Moody's to threaten a ratings downgrade under such dubious
reasons as the possible further deterioration of its mortgage
portfolio sounds shaky given recent developments, But I don't know.
Maybe Moody's knows something I don't.