If you haven’t been watching the slow, ugly waltz to recession, the role of the bond insurers in the housing mess in the US has been crucial. Bored with insuirng boring (but so important) municipal bonds, the insurers decided to lend their good name too the high risk securitized mortgages which were the basic log on the bonfire of the housing fever.
They insurers now face lots of uncertainty ad because the rating they give to ANY bond becomes the rating for EVERY bond, their former gold standard (but boring, of course). Idiots. Boring can be good in all things financial). The ripple effect of not covering their claims and loosing their rating will be wide, profound, and in some schoolyard way, unfair. Why should my little borough face a credit crunch because the Martini swilling money classes in NY were “bored” by municipal bonds?
Anyway, enter Warren Buffet, superman of the financial age.
Warren Buffett throws $800bn lifeline to bond insurers – Times Online
Warren Buffett, the world’s third-richest man, has offered to help out three of the biggest bond insurers by reinsuring the $800 billion £408 billion of local government securities they underwrite.
Mr Buffett told CNBC television in the US that his firm, Berkshire Hathaway, had approached MBIA, Ambac and FGIC and offered to take on their municipal bond liabilities by providing a second level of insurance.
One of the aphorisms that Castells throws around that rolls around in my read is that in the information age what matters is not “the flow of power but the power of flows.” Maybe, as the hobbling of mighty banks and investment houses to the power of credit ratings and cash flows away. But, doesn’t Buffet’s potential to single-handedly right the global financial system offer a different new vision of power- the power of the super-duper rich to make singular impacts in the gargantuan global financial economy?