Warren Buffett was interviewed (by phone) this morning on CNBC. I listened to the entire interview, and I am amazed that the spin is so much different than the actual facts.
Here is the headline on CNBC;
"Buffett Offers To Reinsure Muni Bond Portfolios"
Here is the headline on Bloomberg;
"Buffett Offers to Assume Muni Liabilities of Insurers"
On the surface one would assume that Buffett is coming to the rescue of insurers like AMBAC, MBIA, and FGIC. Nothing could be farther from the truth.
Buffett is not bailing out, or willing to help the bond insurers solve their problems. He is simply willing to re-insure the municipal bond portion (the safe portion) of their portfolios, and NOT to portion of the portfolio (CDOs- risky) which is wreaking havoc in the markets.
Don't be fooled by the headlines, Buffett isn't bailing out any of the bond insurers. If the market is rallying on the assumption that the bond insurers troubles are over, then this rally is for suckers.
Solutions however are appearing in other areas of the mortgage crisis as six of the largest U.S. mortgage lenders are putting together a plan to allow borrowers more time to refinance their "sucker loans" in a last ditch effort to prevent foreclosure proceedings.
I am amazed how lenders ever financed 100-120% of appraised values instead of sticking to the old 20% down loan rule on home mortgages. All I can say is you reap what you sow.
Bloomberg reported that "Bear Stearns Is `Short' Subprime Mortgages $1 Billion". All I can say is they were wrong when they entered the subprime markets, and based on their track record they are probably wrong on the short side too. But, who knows, even a blind squirrel finds an acorn now and then.
Here is a picture from John P. Hussman's website- Hussman Funds.
Accurately portrayed, during periods of expansion, subprime loans are worth something. During recessionary periods... well, you get the picture.
Yesterday's Market
Dow Jones announced they were adding Bank of America (BAC) and Chevron (CVX) to the Dow 30, and removing Altria (MO) and Honeywell (HON).
Yahoo said no thanks to Microsoft's takeover bid.
AIG said their losses tied to credit derivatives were $4.88 billion. AIG's founder Hank Greenberg has been actively selling his shares through his holdings company Starr International, and C V Starr & company. Auditors had found AIG had material weakness in its internal controls related to the valuation of their credit swap portfolio.
