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Extra Credit, Tuesday Edition   CLOs: Yes, Let's Panic
Feb 12 2008 9:29AM EST

Buffett's Offer Won't Save the Monolines

Warren Buffett: A mensch with a triple-A rating. Just as the monoline bond insurers are melting down, he offers to ride to the rescue - for an undisclosed fee, of course - and reinsure their liabilities, solving their problems at a stroke. How could one of those monolines have turned him down already?

Well, for one thing, Buffett isn't offering to reinsure all their liabilities: he's only offering to reinsure their municipal books. Bloomberg quotes Robert Haines nailing it:

"If you gave up your entire municipal business, that's the book of business where the value in the companies is right now,'' said CreditSights Inc. analyst Robert Haines. "You'd essentially be ceding that whole book to Buffett and what you'd be left with would be the book of business where all the troubles are."

So why are the monolines' share prices rising? Beats me, since their solvency situation hasn't changed at all. My feeling is that this uptick won't last.

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