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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: stomper who wrote (9918)	9/7/2008 10:41:07 AM
From: Hawkmoon	Respond to of 33421

I guess my initial sophmoric thought is as you state...aren't you playing with fire based on the potential liablities for which the MI's are severly underfunded? Yeah.. it's treacherous territory because it's really difficult to understand all the accounting. They have tons of cash yet, for most of them, they've had to set reserves aside for POTENTIAL claims based on models that might not arise. This is especially true if they can obtain sufficient legal "wiggle room" as the level of fraud by the banks becomes more clear. And this is why I focused on RDN. $30 Book value, approx $300 million likely to hit their bank accounts by the 19th from Sherman Financial buying out RDN's stake, and a risk to capital ratio of 15 to 1, which is consistent with AAA. biz.yahoo.com BTW, I think you are dead on re the legal fights coming. And I think that's what makes the MI's truly attractive. They can effectively hold "hostage" the financial restructuring of the banks as they attempt to get these CDO liabilities off of their books because when the insurance was written (or Credit Swaps entered into), the CDO owners had to pass on the voting rights to the monolines. And now they can't sell the CDO without the approval of the company holding the voting rights. This gives the monolines tremendous negotiating power over the banks, which I believe includes any attempts to move these non-performing assets into a "spin-off" financial vehicle to get them off the Banks's books. seekingalpha.com Typically, monolines pay out claims on losses over a period of 20 or 30 years, but the types of sales that the banks are looking to score would accelerate those payments and further hammer companies already hurting. The banks appear to recognize that the insurers are unlikely to be able to cough up the cash needed to pay off these losses. That has led to discussions about whether to waive claims payments in exchange for cash or warrants in certain publicly traded monoline companies. "Clearly, liquidation into this market is tough but holding on long term might not be your best case," said Joe Messineo, who runs a New York-based structured finance consulting firm. "Not many people envisioned the magnitude of this would come down to documents." nakedcapitalism.com So Stomper, I think the above articles seem to bear out the contention I'm seeing that the monolines hold the "keys to the kingdom" with regard to banks getting their books in order and writing off these toxic assets. But I will admit, having never invested in the sector before, there's a tremendous learning curve involved. And I'm certainly claiming that I know even a percentage of what I need to know. Hawk