At Ambac, Deciding who’s safe & who eats shit
Wisconsin’s office of the insurance commissioner would like to split the company into two separate entities, like good bank/bad bank. Investors on the mortgage securities side (the bad bank) get 25 cents on the dollar and some notes. Muni issuers, who reside on the “good bank” side, live to fight another day in that they’re made whole. Even more interesting is how, back in June, “the commissioner quietly allowed Ambac to unwind $13 billion in credit default swaps it had written for 14 financial institutions, most of them from overseas. Ambac paid $4.6 billion in cash and notes under this deal, depleting funds available to pay Ambac policyholders”.
(I suspect we cut a deal to make up for the damage done to investers outside the US who purchased all that toxic junk. I think that deal is a function of their continued support in the treasury market).
“The purchases of treasury debt by foreign official counts holding custody at the Fed have exploded, and they are making new highs – it is above 2½ trillion now. Its gross is about 165 billion over the last 6 weeks, net that is almost 90 billion in new treasury debt purchases, and if you go back over the last 12 months, it is over one-quarter trillion dollars.” (transcript: http://mcalvanyweeklycommentary.com/ica2010-1110-mp3/)