Wednesday, December 19, 2007

Banks Studying Bailout of ACA

by Bill McBride on 12/19/2007 01:01:00 AM

“It’s a zero-sum game. If you put trades on that worked so well that you bankrupt your counterparty, you will not collect on those trades.”
(edit, quoted wrong person) Jim Keegan, a senior vice president and portfolio manager at American Century Investments
I'm starting with Keegan's comment because that was my first reaction to a possible bailout by the banks. Since ACA currently has a negative net worth, wouldn't the bailout amount have to be equal to the amount that ACA lost (and the banks saved by buying insurance)? How does that help?

From the NY Times: Banks Study Bailing Out Struggling Bond Insurer
Officials from Merrill Lynch, Bear Stearns and other major banks are in talks to bail out a struggling bond insurance company that has guaranteed $26 billion in mortgage securities, according to two people briefed on the situation, because the insurer’s woes could force the banks to take on billions in losses they had insured against.
Worth reading.