The odds for an industry-wide bailout of bond insurers are getting very long. A senior investment banker familiar with the bailout discussions tells DealBreaker that many of those involved have concluded that any bailout would be "unwise, unnecessary or ineffective."
'There's been a real loss of faith in the idea of a coordinated rescue," he said.
Even if the bankers and regulators were to eventually come to a consensus on the bailout, it is likely to come too late to save insurers from downgrades. This is why MBIA, the company whose fate has been at the center of the bailout negotiations, has now moved to sell $750 million of stock. It is not at all confident that help is coming soon.
Meanwhile, pressure is mounting at the ratings agencies to downgrade the bond insurers. As more reports emerge about the bailout failing, holding off on downgrades becomes less attractive. The ratings agencies are very aware that the widespread impression that they are holding back on downgrades is further tarnishing their already dimmed credibility.
In another sign of trouble for the bond insurers, prominent banking heads have been talking about how well positioned they are to deal with a ratings downgrade. Today both JP Morgan Chase's Jamie Dimon and Deutchebank's Josef Ackerman went out of their way to talk about how their banks are well prepared for a downgrade. This high level talk of the effects of a downgrade of bond insurers indicates that there is little confidence an effective rescue plan can be put into place. And the reassurances that downgrades will not cause major turmoil is a sign that many senior bankers do not feel an urgent need to organize a bailout.
Posted by , Feb 07, 2008 10:54AM
Can "The ratings agencies are very aware that the widespread impression that they are holding back on downgrades is further tarnishing their already dimmed credibility." be substantiated without citing crazy nut bloggers who know nothing about finance?