In the great financial unwinding of 2008-2009, bond insurers want to be let off the hook for $125,000,000,000. Wow, wonder if I can get my bank to wipe out my debt, it's a lot smaller.
Aline van Duyn of the Financial Times:
Bond insurers such as Ambac, MBIA and FGIC are talking to banks about wiping out $125bn of insurance on risky debt securities in what could be the only way to limit the financial damage surrounding the bond insurers.
Discussions about “commuting” these insurance contracts, which were sold by bond insurers to banks in the form of credit default swaps, have taken on a renewed sense of urgency amid a rash of ratings downgrades in the bond insurance, or monoline, sector last week. [snip]
Bond insurers are in different stages of financial trouble, with smaller ones such as FGIC already rated in the junk category. Last week, Ambac and MBIA lost their last triple A credit ratings after Moody’s downgraded them to double A and single A respectively. Both ratings have a negative outlook. [snip]
There is little certainty about whether or not these CDSs will ever have to be paid out. In theory, bond insurers could be on the hook for billions of dollars, but it is possible that if market conditions stabilise and improve, their actual pay-outs might be low.
So in theory, if nobody sneezes, the whole house of cards might hold. Good luck with that.
photo by crazyneighborlady