Subscribe to this blog's feed"He's fainted," says the villainous Hercules Grytpype-Thynne, in one episode of the 1950s Goon Show. "Open his jacket and take the weight of his wallet off his chest."
In this evening's performance, the part of Grytpype-Thynne will be played by Warren Buffett, who announced a monoline rescue bid on CNBC recently. Here's a link to the interview and a transcript.
Buffett's proposal is that Berkshire Hathaway would reinsure $800 billion in muni bonds which are now insured by three monolines - Ambac, MBIA and FGIC - in exchange for 1.5 times the total remaining premiums. One of the three's already turned him down and the other two haven't decided.
It's pretty obvious that this would be a great relief for the issuers and holders of muni bonds - their ratings would again be secured by BH's insurer, which is essentially a monoline as they were before they started to meddle with CDOs. But it would leave the existing monolines without the steady revenue stream of their muni business, and still holding their radioactive CDO risk. Not a great deal (especially coupled with that 150% markup on the muni premiums).
So what's he thinking? Whitney Tilson at seekingalpha.com comments:
Why did Buffett go public with his offer? It puts a lot of pressure on the bond insurers to take the offer, reduces the chances of a government bailout, and/or might help push [New York insurance regulator Eric - ac] Dinallo to directly or indirectly put the companies into run-off.
If he can push this sale through by leaning on the regulators, it would kick start his own monoline business very nicely. Next steps? I would imagine growing pressure from muni issuers for the deal to go through to preserve their AAA wraps, and some sort of compromise over a bailout - the monolines get a bit of money in exchange for agreeing to the sellout. Bloomberg has more.
Should be interesting.
