Okay folks, now its official! According to Moody's, you can now put your retirement portfolio in Ambac bonds in addition to those boring Treasuries, because it is just as safe - AAA safe! Moody's has spoken...
"Moody's gave a tentative pass to the biggest bond insurer, MBIA Inc., by affirming its rating late Friday but changing the outlook to "negative," in a move sure to cause howls from bearish investors and sighs of relief from Wall Street. Moody's also affirmed the triple-A rating of Ambac Financial Group Inc., another major bond insurer.
Moody's update of its view of the bond insurers had been awaited because of concern about the impact of troubles in the mortgage market on securities that bond insurers cover. Bond insurers guarantee the principal and interest payments on more than $2 trillion in debt, including securities that are backed up by mortgages.
Both MBIA and Ambac are top-rated insurers, and both have announced moves this
month to boost their capital, which could help protect those ratings. This
month, a private equity firm agreed to provide up to $1 billion to MBIA, which
said at the time that it was also considering additional capital options. And
Ambac struck a deal under which it bought reinsurance for a $29 billion
Hmmm. MBIA takes nearly a billion dollars in value losses on its portfolio in one month, gets a 500 million dollar equity investment below current market price, and an offer for another $500 million through a discounted right's offering, which brings it back to where it was before it lost the $1 billion last month (which was in trouble) and it gets its AAA rating confirmed??? Ambac buys reinsurance from Assured Guarantee, a company in the same business as Ambac taking very similar losses, and it gets to retain its AAA rating??? Doesn't anyone see concentration risk and an uncomfortable amount of correlation here, or is it just me?