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To: reaper who wrote (208782)	12/10/2002 1:51:04 PM
From: orkrious	Respond to of 436258

From PealMoneyPro Whitney Tilson Why I'm short MBIA 12/10/02 12:56 PM EST In my first post on this site recently, I disclosed that I was short MBIA (NYSE: MBI) and wrote: "MBIA embodies the risks I see across the financial sector: high leverage, inadequate reserving for big likely liabilities, opaque balance sheets, off-balance-sheet entities, etc." For more on the short thesis, I highly recommend reading Gotham Partners' bearish report on MBIA, released yesterday. It's a spectacular piece of analytical work and if Gotham is right about even a few issues they've raised (and I obviously think they are), then there are huge implications, not only for MBIA but also for the entire financial system (given that MBIA has guaranteed $764 billion of financial products). Over the past five years, MBIA's market share in its core domestic muni insurance market has declined steadily from 42.4% to 25.9%, yet MBIA has continued to grow at its historic mid-teens rate by aggressively insuring a wide range of additional financial products, including credit default swaps, CDOs, synthetic CDOs, and the like. This has resulted in a huge shift in MBIA's book of business over the past five years. Consider that as of Q1 1999, 71.0% of MBIA's book of business was in domestic public finance and only 4.5% was "CDO, CLO, CBO and related corporate obligations." In the first three quarters of this year, the percentage of business written in those two categories was 39.6% and 34.9%, respectively. Any time a company materially changes its business, there is a significant chance of something going wrong because of execution risk, unfamiliarity with the new lines of business and so forth. The potential downside is, of course, magnified in the case of a highly leveraged financial institution like MBIA. It is clear to me that MBIA is not the AAA credit that it's cracked up to be, and now the Gotham report has provided a number of smoking guns, which I expect will act as catalysts. MBIA has no margin for error, which is the key to the short thesis: one doesn't have to believe that MBIA is worthless to short the stock -- one only has to believe that the company is not a AAA credit. Even the company admits that were it to be downgraded even one notch, it would effectively lost its business franchise. Short MBI