Emporers Should Not Have Rebuffed The Oracle [Corrected]

by Janet Tavakoli - February 14, 2007

MBIA, Ambac, and FGIC took a bath in structured finance and now they require some coverage. The dripping wet former emperors of the financial guarantor world are getting cold, and it is not a pretty sight. They led us to believe they had better assets. Their self-deception has us questioning their fitness to rule.

Mr. Buffett held out a warm fluffy towel to cover up the essentials. The emperors seem to think they are entitled to a bespoke tailored suit from Savile Row. Investment banks that left the emperors bare may provide it, but new clothes will not fool the market. If order is to be restored to the municipal bond markets, the emperors should have grabbed the towel.

The bond insurers would have had to first accept Berkshire Hathaway Assurance’s offer to provide reinsurance at double the original primary insurance fee. Then they could shop the offer for 30 days. If they found a better deal, they would pay a 1.5% kill fee to Berkshire Hathaway Assurance. The offer was not accepted by the monolines.

Disclosure: Ms. Tavakoli owns shares of Berkshire Hathaway (BRKA).

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