Filed under: Deals, Politics, Housing
New York Say Insurance Superintendent Eric Dinallo has been twisting the arms of major banks to get them to put up $15 billion or so to bail out Ambac Financial Group (NYSE: ABK) and MBIA Inc. (NYSE: MBIA). If the muni bond insurers can’t maintain their high ratings with agencies like S&P, the value of the bonds that they insure could drop sharply, leading to more write-offs at Wall Street firms.
S&P has now said that the $15 billion might be just fine. “The dollars we understand that he’s speaking about — $5 billion immediately and $15 billion ultimately — those are substantial numbers and I think could give us a fair degree of comfort relative to resolving any issues about capital adequacy,” S&P analyst Dick Smith said in an interview with Reuters.
The fact of the matter is that no one knows how much money will be needed because no one is certain how much worse the credit crisis and mortgage debacles may get. That, in turn, is prone to make huge banks gun-shy about writing checks for money that they might not have themselves. Most are in the market raising funds to save themselves.
The value of the two huge muni bond insurers could still go to zero and the large banks my not want to see all of that capital disappear.
If New York Say wants to act, it should bring capital of its own to the table and not ask the banks to carry the whole load.
Douglas A. McIntyre is an editor at 247wallst.com.
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