Warren Buffett’s offer to take over insurance coverage of $800 billion of muni bonds from the troubled “big three” insurers is no rescue plan for them — it’s a death knell. Any insurer that accepted this offer would have little left but some cash from Warren and a box of rocks. Of course, better alternatives to ward off Buffett’s reinsurance plan are shrinking fast. Those that reject his offer might wake to find the metaphorical horse’s head in their beds a few weeks down the road.
Recall that the three bond insurers, MBIA (Symbol: MBI), Ambac Financial Group (ABK) and Financial Guaranty Insurance Co., spent years as highly profitable but sleepy outfits lending their triple-A ratings to municipalities for a small fee. Munis rarely defaulted, the insurance made it easier for big investors to shop amongst the many diverse issuers and the issuers saved alittle on their interest costs. Win, win, win.