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MBIA Inc. Message Board

  • cohsgrad cohsgrad Mar 14, 2013 2:55 PM Flag


    I don't have a financial interest in the issue one way or the other but I felt like posting a couple of points about Detroit and its impact on MBIA.

    First, anyone who says that its financial problems have no impact on MBIA are so obviously wrong it is incredible. Insurance is a risk business. If you insure nice safe secure Detroit water bonds that are viewed to have a risk of default of say 0.1% (.001) and then five years later the risk of default has increased to 1% (.01) your risk profile is much higher. To say that no loss is recognized until a cash payment takes place is silly.

    Second, I've seen municipalities that have carried on in the face of bad public investments in infrastructure. It wears on a community over the years as no businesses will locate there and those that are there tend to migrate out. Detroit's water system is not going to kill the town but it wears on it and makes it tougher to compete.

    Third, from today's WSJ:
    Under a new Michigan law that takes effect later this month, Mr. Orr will have the ability to sell city assets, break municipal labor contracts and renegotiate terms with Detroit's creditors. Elected leaders in Detroit could lose much of their power, but Mr. Orr said he would be willing to work with those who get on board with his turnaround plan.

    Note the comment on creditors.

    Fourth, MBIA's leverage ratio is so high that it only takes one massive loss and they are wiped out. It kind of goes to a point that I have been making that those companies that insure low probability events really ought to come clean and say, we go bankrupt if such and such an event happens so why not be honest and just write into the contract that if said event happens, the policy doesn't cover it.

    Obviously, I think MBIA is a detriment to society. It is a detriment on so many levels it is incredible. Hopefully it will be gone before long but I'm not holding my breath.

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