Spitzer: The Monoline Angle

It looks very much as though Eliot Spitzer is toast right now: the NYT is reporting that he's expected to resign this morning. If and when that happens, whither the monoline insurers? Gari does some analysis:

It's interesting to note that when Spitzer was dallying with courtesans at the Mayflower hotel in DC, he was in town to testify about bond insurance. Spitzer's attempt to refloat the bond insurers can be viewed as one of several attempts to make nice with the financial services industry. A couple of short-sellers aside, most of Wall Street has an interest in keeping the monolines, a reliable conduit to the pockets of retail investors, open for business.
It's not as if Spitzer's departure is likely to end efforts to rescue the bond insurers, and it could be that the role of New York state's government in the effort has already been superceded. But while the Spitzer/Dinallo wrangling was designed to deal with continuing issuer access to market rather than protect investors, stabilising the market is an area where the interests of the two coincide.
Leadership of the effort is already shifting, in particular to California. But California has an almost innate distrust of the financial services industry. Any investment banks that are currently cheering the downfall of their nemesis should remember that moment when Bill Lockyer manages to get their monolines dismembered.

I think this does a mild disservice to Eric Dinallo, who's more than capable of taking the lead on these matters himself, especially if he has a relatively complaisant boss. But I do think it's unlikely that a Paterson-run New York will be as forthright on the monoline front as Spitzer's New York was. And that might not be good news for MBIA, Ambac, and the rest.