Feb 17, 2008

Jon Markman on the prospect of the bond insurers losing their AAA credit rating

[T]he consequences of a downgrade of the monoline insurers if they were still responsible for guaranteeing muni debt would be too catastrophic to even contemplate... the monolines basically rent out their AAA rating to municipalities in exchange for insurance premiums. So a downgrade of the monolines' ratings would in turn mean a downgrade of the munis. Due to contract covenants that require munis to hold high ratings, a downgrade would in a great many cases require cities and states to buy back much of their trillions of dollars of debt from buyers -- which would be impossible -- and force them into bankruptcy or into enormous tax increases to pay for higher interest rates.

~ Jon Markman, "Buffett's an opportunitst, not a hero," MSN.Money, February 15, 2008

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