S&P Keeps Bond Reinsurance Rating Rigged Game Alive (ABK, MBI)

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S&P reaffirmed the "AAA" ratings for both MBIA (NYSE: MBI) and Ambac (NYSE: ABK).  S&P noted that MBIA was removed from CreditWatch and a negative outlook was assigned, meaning it is no downgrade imminent even if it does ultimately occur.  Ambac was affirmed with its AAA and remains on CreditWatch with negative implications.

What is obvious as a nose wart is that by now everyone in the world realizes that the ratings agencies are artificially keeping the rating elevated.  That will allow for a bailout resolution to 1) have time to come about and 2) allow the banks to not fear they come up with a multi-billion bailout plan that ultimately leads to more downgrades anyway.

We have hinted at government wink-winks for over a month right now where there will probably be all sorts of "incentives" handed out to avoid an economic meltdown.  These writedowns will come through time anyhow, but as long as they don’t all hit at once and as long as the bubble that will lead to de-leveraging lets the air out slowly then a meltdown might just be a fairly mild sector recession rather than it looking like doomsday.

MBIA shares are now up more than 12% today and Ambac shares are up 7% on the day.  Both initially spiked higher on the headlines.

Jon C. Ogg
February 25, 2008