Bond insurers: Eric Dinallo cometh.
The New York insurance superintendent Eric Dinallo has just been speaking to CNBC - the news outlet of choice for pre-weekend monoline news. Says Dinallo, FGIC - which lost its last triple-A rating on Thursday - wants to split itself up:
The company would be split into a municipal bond insurer and a structured finance insurance company, in a ‘’good-bank/bad-bank'’ plan that would split off the relatively safe business of insuring municipal debt from the riskier business of guaranteeing repackaged mortgages and other debt.
“As of this morning, we received a notification from FGIC that they have sought application to have their business actually split into two,” Dinallo said during a live interview.
Which is certainly an interesting development. The Aleph blog earlier mused that a bond insurer break up simply wouldn’t be a legal option. And in the event:
In many other situations this would be called fraudulent conveyance, but when you have a state government behind you, I guess it gets called public policy.
In the event of a break up, though, what we wonder, will the effect on the banks be? It’s pretty clear that through all of this, the NY state authorities’ concern is strictly with the muni bonds, and the “ordinary Americans” their downgrade would impact upon. Breaking up the monolines will be done to safeguard those.
For banks then, who have CDO hedging arrangements in place, the outlook isn’t rosy. A rump toxic debt insurance company hardly sounds like a going concern.
A breakup plan might well be an option to save Main Street at the expense of Wall Street
