MBIA Posts $2.4 Billion Loss
MBIA the large bond insurer posted a nifty $2.4 billion loss for the quarter on the back of losses tied to the mortgage bust. Bloomberg has the full details.
If you are interested in why the bond insurers play such a central role in this mess (and how they are essentially teetering on insolvency) check out this great presentation on MBIA and AMBAC. It goes way in-depth about the problems with the bond insurers.
From the report, this graph below shows how MBIA has reduced cash reserves even as the company continues to be exposed to CDO losses.
As Warren Buffett says about the problems with bond insurers’ business models:
“We see a Baa credit enhanced to a Aaa credit by someone guaranteeing it for a 10-15 basis point charge. Yet, the spread in the market yield might be 100 basis points. Well, that doesn’t strike us as smart. … I would say that at some point, you can get into a lot of trouble at 140-to-1 insuring credits.”