Will MBIA and Ambac go out of business?

[skepticalbeliever]

It doesn't look for these two. I know that if they go under it will spell trouble for the markets. Who thinks they can survive? I think it is more of a question of how soon they will go under.

http://finance.google.com/finance?q=abk&hl=en

http://finance.google.com/finance?q=NYSE%3AMBI

[balrog666]

It doesn't look for these two. I know that if they go under it will spell trouble for the markets. Who thinks they can survive? I think it is more of a question of how soon they will go under.

http://finance.google.com/finance?q=abk&hl=en

http://finance.google.com/finance?q=NYSE%3AMBI


What failure looks like:

http://ichart.finance.yahoo.com/z?s=ABK&t=1y&q=l&l=on&z=m&p=b&a=

[Francesca R]

It doesn't look for these two. I know that if they go under it will spell trouble for the markets. Who thinks they can survive? I think it is more of a question of how soon they will go under.

http://finance.google.com/finance?q=abk&hl=en

http://finance.google.com/finance?q=NYSE%3AMBI

Speculation (some of it quite reasonable) that the monolines (except they weren't "mono line"--that was their problem . . .) will fail has been around since January '08 at least. They won't fail simply because of their stock prices, though.

If they do, then

1--They stop trading, equity holders lose everything
2--The credit ratings of muni bonds and CDOs/CLOs, all the way down to "toxic waste", would likely have to be lowered by rating agencies, since the point is that these securities only have such high credit ratings because of the insurance. (Otherwise they would not bother taking it out, and Ambac and MBIA would not have a business in the first place)
3--Certain institutional public/private investors would be forced sellers of these insured securities--they would have to liquidate if the credit rating fell below their minimum threshold.

Now even though all of these sound like "bad, bad news", they are all to some extent expected and therefore discounted in market prices. So if they happen they will not be so bad.

In the case of (1)--that's why monolines' shares are already trading at a fraction of what they were a year ago. In the case of (2) and (3)--the insured bonds are already trading at yield spreads over treasuries that seem to effectively reflect the downgrade of their credit ratings (IE the "insurance" is being already priced as worthless. And in the case of (3)--forced liquidation would cause volatility, but there is already a lot of that, and it would also produce opportunities for less restricted investors.

In short I think you could say that this dog has already barked :)