Wednesday, December 19, 2007
MBIA Inc. and Ambac Financial Group Inc., the world's largest bond insurers, had the outlook on their AAA credit ratings lowered to negative from stable by Standard & Poor's, while ACA Capital Holdings Inc.'s guaranty ranking was cut to CCC from A.The consequences are so severe that it is likely a bailout will be constructed by parties that will take major losses on securities if it doesn't. The reason why they would do so is that by bailing out the company, they will get a stake and a theoretical way to recover some value down the road. But this one's very risky, because ACA can continue to degrade, and it is likely to do so. The alternative is to purchase replacement protection from another outfit, hopefully one that does not go bust next summer (ACA will not be the last). It is now expensive, however.
S&P also reduced its outlook for Financial Guaranty Insurance Co. and XL Capital Assurance Inc. to negative.
ACA Capital is required to post collateral of about $1.7 billion if its credit rating falls below A-, management said during a Nov. 9 conference call. The rating was cut 12 levels today. The New York-based company said Nov. 19 it wouldn't be able to post that much or make termination payments on the contracts.
Bear Stearns Cos. and Merrill Lynch & Co. are among several major banks in talks to bail out ACA, the New York Times reported today, citing two people familiar with the situation.
This one's big. Everyone's known it was coming, but this certainly is like waking up and finding the Grinch lurking in the bare living room. Poor Cindy Lou! Poor Stern Sad Bear! Poor Merry Bull! And yesterday Sacks of Gold announced that some of its domestic gooses seemed to have stopped laying golden eggs, for reasons no one could have foreseen, except maybe Dr. Seuss. The problem with the best and the brightest minds of IB is that they don't spend enough time reading fairy tales.
No one is going to ask the question openly about why companies were buying protection from a shaky company in the first place. But it is the question that is lurking in every investor's heart, and the world of Wall Street is getting more and more like the world of Walt Disney and Dr Seuss.
The really great thing is that it is all going to get so much, much worse on the default side. Who the heck can refinance all those funny money loans if they are supposed to verify income, as the FRB is proposing? I expect the commentary on the proposal will read about like this:
You're a mean one, Mr. Grinch.It will be the S_n_t_rs talking that way too, as the head of FNMA and various major banks call up cursing and awailing foul fate. The S_n_t_rs have had their fun trash-talking the FRB, and now the FRB has struck back. Personally, I like the idea of seeing Chuckie the Duckie Schumer wailing "Yooour soul is fuuuull of guuunk!" into the mike clasped in his death grip. Must be my latent sadism.
You really are a heel.
You're as cuddly as a cactus,
You're as charming as an eel.
You're a bad banana
With a greasy black peel.
You're a monster, Mr. Grinch.
Your heart's an empty hole.
Your brain is full of spiders,
You've got garlic in your soul.
I wouldn't touch you, with a
thirty-nine-and-a-half foot pole.
You're a vile one, Mr. Grinch.
You have termites in your smile.
You have all the tender sweetness
Of a seasick crocodile.
Given the choice between the two of you
I'd take the seasick crockodile.
You're a foul one, Mr. Grinch.
You're a nasty, wasty skunk.
Your heart is full of unwashed socks
Your soul is full of gunk.
The three words that best describe you,
are, and I quote: "Stink. Stank. Stunk."
You're a rotter, Mr. Grinch.
You're the king of sinful sots.
Your heart's a dead tomato splot
With moldy purple spots,
Your soul is an apalling dump heap overflowing
with the most disgraceful assortment of deplorable
Mangled up in tangled up knots.
You nauseate me, Mr. Grinch.
With a nauseaus super-naus.
You're a crooked jerky jockey
And you drive a crooked horse.
You're a three decker saurkraut and toadstool
With arsenic sauce.
Blogging will probably be light, because the Chief is making a desperate attempt to escape from the medical web in which I have brutally enmeshed him. I must stand guard over his live body, or I will find myself standing watch over his corpse.
It's quite the miracle, and as you can imagine, Cheryl had a wonderful Thanksgiving and will have a great Christmas.
Thanks again for your prayers. It was a very close one.
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