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Bill Gross on Ambac

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February 08, 2008 – Comments (4)

 If you haven't gotten it yet, Bill Gross has said it best...

"How could Ambac, through the magic of its triple-A rating, with equity capital of less than $5bn, insure the debt of the state of California, the world’s sixth-largest economy? How could an investor in California’s municipal bonds be comforted by a company that during a potential liquidity crisis might find the capital markets closed to it, versus the nation’s largest state with its obvious ongoing taxing authority? Apply the same logic to the gargantuan size of the asset-backed market it has insured in recent years – subprimes and CDOs in the trillions of dollars – and you must come to the same logical conclusion: this is absurd. It is as if Barney Fife, television’s Sheriff of Mayberry in The Andy Griffith Show, promised to bring law and order to the entire country."

4 Comments – Post Your Own

#1) On February 08, 2008 at 5:05 PM, leohaas (31.73) wrote:

Great reference, dwot!

When reading this, keep in mind that Mr. Gross is short ABK and MBI. A bail-out of these companies so they can keep their (bogus, but who trusts the ratings agencies these days) AAA rating would not be in his interest...

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#2) On February 08, 2008 at 5:25 PM, dwot (60.71) wrote:

True, but a bail out of these companies would not be in any of our interests, imho...

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#3) On February 08, 2008 at 5:26 PM, toshimelonhead (34.60) wrote:

Can some one explain to me HOW ABK and MBIA survive?

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#4) On February 08, 2008 at 7:01 PM, jegr5347 (< 20) wrote:

They must place the risk with counterparties via derivatives or turn around and buy reinsurance from the big gargantuan German insurers or something. I can't fathom them covering the potential losses of a CDO, municipal or state default. Similar to AON or Marsh.

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