Thursday, January 31, 2008 8 comments ++[ CLICK TO COMMENT ]++

The Monoline Circus: Time for the MBIA Act

It's really not funny when one is losing tens of thousands of dollars in an investment, but following the whole monoline industry crisis may end up being the most bizarre experience of my investing career. The latest bizarre act involves MBIA and Bill Ackman, who is trying to develop an "open source" methodology to evaluate how bad the losses will be. Not only are people to analyze the claims but they are to participate in developing better methods to determine how badly off the monolines are. He sent a letter to the insurance regulators and to the SEC (I read it was also sent to Ben Bernanke but not sure). I have no problem with shorts (they improve efficiency and allows the market to price assets better) but it's surprising that the media has given so much airtime to Pershing Square.

To make matters worse (in my eyes), MBIA isn't doing anyone any favour by holding a limited conference call, where questions are to be submitted in advance. Instead of asking questions live during the conference call, listeners are to submit in advance or electronically. If they are doing that to prepare a good answer for the questions, which are deep and complex, that's fine; but if it is to censor the questions, that's doing a disservice to shareholders. For what it's worth, management is fairly new so they may not be comfortable like the Ambac management, who has been with the firm for many years.

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8 Response to The Monoline Circus: Time for the MBIA Act

January 31, 2008 at 11:44 AM

From what I've heard, with all the Ackman brouhaha going on, MBI knew it would be hosting the "call of the century" As it is, I believe they took on 200 questions(!) which could mean a very long call (not sure if they will answer all).

What did you think of Ackman's no's?
Square peg in a round hole?

January 31, 2008 at 11:59 AM

Another fear factor from CNBC -
Gasparino & Bill Seidman

Gasparino:One possible scenario is that New York State commissioner Eric Dinallo could force a prepackaged bankruptcy of the bond insurers and split the municipal bond insurance from that of the risky subprime debt. The municipal bond insurance business could be sold off, while the risky debt insurance would likley be written off.

Seidman: I don't see how NY could do that. It's a regulated industry among all 50 states so every state...

Seidman was cut off by Gasparino

January 31, 2008 at 2:20 PM

MBIA is handling the conference call well it seems...

Here is an article on Bill Ackman and his pursuit of MBIA. As I have said before, I don't have anything against him. I do respect his value investing strategies (such as taking a position in Borders). It's just that his "activist" shareholder methods get old.

January 31, 2008 at 2:54 PM

Ross is eyeballing opportunities -

BOSTON, Jan 30 (Reuters) - Money manager Invesco Ltd (IVZ.N: Quote, Profile, Research) said on Wednesday a group fund to be managed by billionaire private equity investor Wilbur Ross has received $4 billion in commitments and has closed.

The WLR Recovery Fund IV will invest in and restructure financially distressed companies, Invesco said in a statement. Ross is chairman of WL Ross & Co, which Invesco bought in 2006.

"We launched this fund, our largest to date, some months ago in anticipation of the turmoil that is now providing us with a wide range of distressed investment opportunities," Ross said in the statement

January 31, 2008 at 3:11 PM


Talk about a transcript. MBI conference call was 4 hrs.

January 31, 2008 at 6:32 PM

I'm trying to work my way thru Ackman's stuff (for some reason my computers zoom function won't hold still) but looking at his chart of losses it looks as tho his "open source model" calls for total losses on practically everything at AA and below. Am I reading that right?

January 31, 2008 at 6:38 PM

Mainly 06 & 07, but part 05 ARMS & Home Eq

January 31, 2008 at 9:39 PM

I haven't looked at the spreadsheet CAK. I just took a quick look at the letter he wrote. If I feel like it, I"ll take a look at his spreadsheet later...

The problem is that all of this depends on the assumptions used. One can easily get a really high number if you use a high default rate. To make matters worse, we just don't know how subprime is going to perform given that most of what is happening is unprecedented. Ackman CAN turn out to be right--but no one knows right now.

All I'm doing is to sort of read stuff and just wait. I think it is probably best if you come up with a tactic on what to do. Is there a limit where you will sell and take a loss? If yes, you might want to make a mental note or set a stop-loss and not worry too much. As for me, I'm willing to hold until I feel that the fundamentals are getting out of hand. By fundamentals I'm not even talking about getting back the AAA rating or the regulator restricting stuff; instead, I'm watching the subprime default rates and losses. Given the declining rates, the ARM reset situation should improve. I remember readin somewhere that some people are actually saving $1000 per month--this is sizeable--on their payments by refinancing at the present rates (I'm not sure if that is subprime or not though).

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