News Item: Muni Insurance Proves Worthless as Borrowers Shun MBIA, Ambac
Eric: Now here is a little story that came out on Bloomberg News Friday. Maybe it’s the holiday season, but this should cause a march on the offices of Moody’s, S&P, MBIA and Ambac. You really have to wonder if someone should be brought up on RICO charges! Look at this:
"Many investment-grade munis would have AAA ratings without insurance if they were ranked the same way as corporate debt. Every state except Louisiana would be Aaa, based on the scale for companies, which ranks borrowers on the probability of default, according to the report by Moody's."
Rich: So essentially, Moody’s just said that they have been incorrectly rating municipalities for years and those incorrect ratings have led to this:
"Taxpayers give insurers $2 billion a year because of a dual-rating scale," said Matt Fabian, senior analyst and managing director of Municipal Market Advisors, an independent municipal bond research firm in Concord, Massachusetts. "You could easily save taxpayers that $2 billion by rating them on the same scale as corporate bonds."
Rich: AH THE DUEL RATINGS SCALE..ONE OF THE many SCAMS THAT WILL COME TO LIGHT. THE POINT HERE SHOULD ALSO BE THAT THE RATING AGENCYS RATINGS ARE WORTHLESS TOO.
Eric: Oh, I think the rating agencies passed worthless a LONG time ago. This here is racketeering!
Rich: So to summarize; the rating agencies grossly overrate Subprime and Alt-A MBS and CDO’s, which ends up being perhaps the main catalyst for the disaster we are currently in.
Eric: The rating agencies also overrate the monolines, which allows the financial system to get an huge false sense of confidence, not to mention real losses as these guys are on the other end of a few hundred billion credit default swaps (Like the loss CIBC just took after ACA got down graded from A to CCC!!)
Rich: And then these guys UNDER rate the municipalities, driving them into the arms of the monolines, who fleece them for about $2bb a year!
Eric: Ah well, what do municipalities need money for, except schools and roads and libraries and police and fire departments, etc. If I wasn’t living in the spirit of Christmas right now I’d say some people should be going to freakin jail!