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Perhaps fearing financial Armageddon, New York State insurance superintendent, Eric R. Dinallo, took action. You may recall that Mr. Dinallo already enticed Warren Buffett to start his own monoline insurance company in late December. This time Mr. Dinallo took on an even more daunting task:
“Eric R. Dinallo, the New York insurance superintendent who regulates MBIA, called Wall Street executives on Tuesday [Jan 22] to set up the meeting at his office in Lower Manhattan. He led the session on Wednesday and suggested that the group move in as little as 48 hours to get a deal done ahead of any downgrading of the bond guarantors by credit ratings firms.” NY Times
* As a side note, there was rumblings that the New York Fed was in Mr. Dinallo’s corner (or pulling his strings?). To date these speculations have not been confirmed.
With 48 hours passing by and no bailout announcement made, Dinallo said that any bailout effort would take time. With the downgrade clock still ticking, earlier today Dinallo made the following statement to MarketWatch:
“While we cannot discuss specifics, there are a number of developments relating to the bond insurers. We are continuing to communicate with all parties to help them reach firm deals as soon as possible.”
Yes, in the span of two-weeks the monoline saga has gone from being complicated to simple: either a bailout is coming or the long overdue downgrades will be unleashed. The only question even worth discussion is how much longer the rating agencies can be kept at bay as nearly the entire industry searches for more capital. As for what happens on rare chance that bailout efforts fail, well, the numbers get fairly ridiculous/unpredictable quickly for the $2 billion MBIA, whose exposure to Channel Re alone is $43 billion...
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