Dinallo's Strong Arm Tactics

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Eric Dinallo, the former Spitzer aide who is now New York State's insurance regulator, insists that the bond insurers are not on the verge of insolvency. But his plan to split the municipal bond business from the rest of their business only makes economic sense if it were necessary to save the companies and preserve value for the safest policy holders. So why is Dinallo so aggressively inconsistent?
What really seems to be going on is an attempt to strong-arm the banks by threatening them with the worst possible outcome of being left holding insurance that probably isn't worth the paper its written on. If they won't inject capital, Dinallo seems to be saying, he'll make them pay through write-downs arising from the downgraded remnants of the broken-up insurance companies. Ugly.

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