Comments on: Monoline Death Watch: A "Bad Insurer/Worse Insurer" Split?

By: "Mindles H. Dreck"

"Mindles H. Dreck" — Wed, 27 Feb 2008 16:12:00 +0000

You know, there's a posting on a discussion forum with an uncanny resemblance to the language above. I wonder if it was cut and pasted from you, Walker or both.

By: Anonymous

Anonymous — Tue, 26 Feb 2008 00:40:00 +0000

Personally I know nothing about Vallejo, but on another blog some commenters indicated it is a perfect storm of financial disaster: tax base cratered when a nearby military base was shut down, and its political system is approaching dysfuction–well beyond the usual dithering that goes on in muni-land.

So maybe they are not a harbinger of anything. I suspect a muni or two goes broke every now and then in good times and bad, when these kinds of things happen.

By: Anonymous

Anonymous — Mon, 25 Feb 2008 20:42:00 +0000

Citibank helping anyone is like one drunk helping another drunk off the floor. Great comedy.

By: peter

peter — Mon, 25 Feb 2008 18:24:00 +0000

what happens with ABK, when the debt they issue at 8 or 9 or 14 pct cpn?….how will the rating agencies reconcile that with AAA or AA, and who will buy insurance from them (”monolines”) going forward…they mkt will determine very early this won’t work (at least with current proposals).

By: Anonymous

Anonymous — Mon, 25 Feb 2008 17:42:00 +0000

vallejo won’t bankrupt ambac… but this is just the first shot across the bow. Cities are losing tax revenue at a rapid rate, many more to come. The US has never been in worse shape to face a serious recession, debt is huge and widespread and low interest rates won’t fix the problems…

By: Anonymous

Anonymous — Mon, 25 Feb 2008 17:11:00 +0000

The Vallejo situation is a perfect example of why insurance works! If Vallejo decides to restructure, and that is a BIG if, they will have the benefit of working solely with one creditor (Ambac) as opposed to thousands of municipal bond holders. Ambac continues to make up the difference in what Vallejo contributes to the bond trustee and what is paid out to bondholders, and when their bonds mature in 20-30 years, hopefully the issuer will be in a better financial situation. Ambac retains any claims against Vallejo until said claims have been discharged. So dont go all chicken little yet on the muni market, things are functioning quite fine at the moment. Yields are low, buyers are ample, and taxes are only heading higher.

By: Ginger Yellow

Ginger Yellow — Mon, 25 Feb 2008 16:51:00 +0000

FWIW, Bank of America and Morgan Stanley both estimate the writedowns from a monoline split at $30bn, based on CDOs of ABS alone.

By: Anonymous

Anonymous — Mon, 25 Feb 2008 15:50:00 +0000

The Vallejo situation is not unique. California cities are not able to raise taxes at will (think property tax revolt of the late ’70’s), and Vallejo has seen its revenue driven by the housing bubble evaporate while at the same time it has a huge unfunded pension liability, especially for fire and police. The immediate crisis seems to be caused by a rush of retirements to beat the threat of bankruptcy, which require the city to fund its pension obligations to those personnel immediately. Talk about negative feedback/vicious cycle.

By: Barry Ritholtz

Barry Ritholtz — Mon, 25 Feb 2008 11:05:00 +0000

Nice analysis.

Amazing that so many people hear a whiff of a bailout and think its positive for equities.

Normally, when the Docs give the patient more morphine, its not a good sign . . .