Why are bond insurers MBIA and Ambac getting hammered?
You guessed it: credit default swaps.
As an article today in Bloomberg puts it:
MBIA and Ambac, previously the world's two biggest bond insurers, lost their top AAA ratings earlier this year because of potential losses on credit swaps sold to guarantee CDOs [collateralized debt obligations] backed by home loans. Moody's Investors Service cut New York-based Ambac's bond insurance rating four levels yesterday to Baa1, three steps above junk, because of potential losses on the derivatives.
***
MBIA, the Armonk, New York-based insurer crippled by ratings downgrades earlier this year following losses from such contracts, has said it sold $126.3 billion in guarantees on slices of CDOs backed by corporate bonds, mortgages and other debt. Ambac sold $60.7 billion in guarantees on these so-called tranches, mostly through credit swaps, the company said.
No comments:
Post a Comment
→ Thank you for contributing to the conversation by commenting. We try to read all of the comments (but don't always have the time).
→ If you write a long comment, please use paragraph breaks. Otherwise, no one will read it. Many people still won't read it, so shorter is usually better (but it's your choice).
→ The following types of comments will be deleted if we happen to see them:
-- Comments that criticize any class of people as a whole, especially when based on an attribute they don't have control over
-- Comments that explicitly call for violence
→ Because we do not read all of the comments, I am not responsible for any unlawful or distasteful comments.