Buffet Offers To Help Out Troubled Bond Insurers
World renowned billionaire investor Warren Buffet, stated in an interview with CNBC, that he has offered to reinsure up too $800 Billion in municipal bonds. The offer went out to three of the largest bond insurers Ambac Financial Group Inc., MBIA Inc. and Financial Guaranty Insurance Co.
This would in effect restore the AAA rating for these bonds, some of which are currently selling at a deep discount as if they carried no insurance at all. One of the three companies has already declined the offer with the other two yet to respond.
This would still leave these companies with the much riskier Collateralized Debt Obligations(CDOs) they have insured which is the real problem the industry is facing.
“Well, they would still have substantial book capital. But how deep that problem is with the CDOs is and other things they’ve done, we can’t figure it out.”
“It doesn’t do anything for the CDOs, but I’m not sure anything is going to do much for the CDOs. We’ll just have to find out how that plays out.”
You can’t blame Buffet, he’d be a fool to consider having anything to do with sub prime mortgage debt. On the other hand municipal bonds offers very little risk to his company which recently entered the bond insurance market.
While this may do little to help the bond insurers, it would help out the credit markets immensely, especially for the troubled lenders who currently carry municipal bonds in their asset portfolios. They have had to deal with bond devaluation on top of their own sup prime troubles.
