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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Sunny Jim who wrote (75150)	2/23/2008 10:34:15 PM
From: Elroy Jetson	Read Replies (1) \| Respond to of 116555

If the banks would have to write down $340 billion, how in the world does a $5 billion investment save that? Well, $5 billion from Warren Buffett would not have fixed anything except the Muni bond insurance side. The $5 billion would have done absolutely nothing to save the insurance on the CDO and MBO portfolios - the trash side of the business. It will be interesting to see how much the banks are willing to put up to save the trash side of Ambac. And Ambac is only one of many insurers. It's not like money banks put into the insurers would be lost, as they will be the primary recipients of the ultimate insurance payouts on these investment trash certificates. Its like buying fire insurance from your neighbor and, after your home burns down, stepping in with loans or capital to prop up your neighbor so he can pay off on your fire insurance policy. Its just you moving money from your left pocket to your right pocket. For you this would be a pointless transaction. The advantage for the banks is they don't have to recognize all of their losses today. By helping maintain the myth of Ambac's AAA rating, they can continue to pretend that their portfolio of trash paper is worh face value. And indeed they hope the losses will one day be smaller. I don't agree with their assessment in this, but there you have it. Bottom line is banks will have to continue to raise hundreds of billions of new capital as the nation de-leverages. .