Substance Trumps Organizational Engineering
February 21st, 2008 by Buck Woodford
This bond insurer saga is quickly growing old. Now even the most vocal ABK/MBI short seller is proposing “solutions.” Of course like the others, it basically involves shifting around assets, liabilities, and cash flows in fun & creative ways.
The New York insurance regulator doesn’t like this plan because it’s “bad for the banks.” Really? They willingly took the risk to begin with, just like we investors do every day. ABK and MBI themself don’t like the plan either because it’s “bad for shareholders” — although their likes/dislikes won’t matter in the end, as the equity in both of them are wiped out.
In this issue, the arguments never change and neither does one fact: Slop is slop, no matter how you organize the slop. At least one party has to get hosed — everyone’s wishes cannot be accomodated.
Insurer bankruptcy, asset writedowns (which are simply already existing losses that conveniently haven’t been accounted for)… or — to shock me and the world — maybe we’ve got it all wrong and the insurers stage a complete business rebound & huge rally in their stocks.
Whatever it entails, I truly look forward to this story’s conclusion. In the meantime, we must pay attention as developments will continue to move markets worldwide.
For that reason and others, our multi-month outlook remains somewhere between cautious and bearish for the US stock market.
