Bond insurers want $125 bln of cover wiped out -FT

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http://www.reuters.com/article/marke...rpc=44&sp=true

NEW YORK, June 22 (Reuters) - Bond insurers such as Ambac Financial Group (ABK.N: Quote, Profile, Research, Stock Buzz), MBIA Inc (MBI.N: Quote, Profile, Research, Stock Buzz) and FGIC are talking to banks about wiping out $125 billion of insurance on risky debt securities to limit the damage to the insurers from the credit crisis, the Financial Times reported on its website on Sunday.

Discussions about "commuting" these insurance contracts, which were sold by the bond insurers to banks in the form of credit default swaps (CDS), have taken on a renewed sense of urgency amid a rash of rating downgrades in the bond insurance sector, the report said.

The talks centre on CDS contracts issued by bond insurers to guarantee payments on collateralised debt obligations (CDOs), complex debt securities often backed by mortgages that have plunged in value amid a wave of foreclosures, the FT said.

The nominal value of these CDSs on CDOs is about $125 billion, according to estimates by Standard & Poor's, the FT said.

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How is this possible and what does it mean?

OliveGreen

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Re: Bond insurers want $125 bln of cover wiped out -FT

http://www.reuters.com/article/marke...rpc=44&sp=true

NEW YORK, June 22 (Reuters) - Bond insurers such as Ambac Financial Group (ABK.N: Quote, Profile, Research, Stock Buzz), MBIA Inc (MBI.N: Quote, Profile, Research, Stock Buzz) and FGIC are talking to banks about wiping out $125 billion of insurance on risky debt securities to limit the damage to the insurers from the credit crisis, the Financial Times reported on its website on Sunday.

Discussions about "commuting" these insurance contracts, which were sold by the bond insurers to banks in the form of credit default swaps (CDS), have taken on a renewed sense of urgency amid a rash of rating downgrades in the bond insurance sector, the report said.

The talks centre on CDS contracts issued by bond insurers to guarantee payments on collateralised debt obligations (CDOs), complex debt securities often backed by mortgages that have plunged in value amid a wave of foreclosures, the FT said.

The nominal value of these CDSs on CDOs is about $125 billion, according to estimates by Standard & Poor's, the FT said.

continued...

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How is this possible and what does it mean?

OliveGreen

Jessescrossroadscafe says:

How does one 'waive' a liability of this magnitude, since it is contingent upon the credit failure of the underlying instruments?

Someone must assume the loss and write it off, or at least artificially protect the underlying security up to avoid the effects of the loss. This is what the Federal Reserve is currently doing with about about 400 billion in dodgy debt for the banks.

We wonder if Ben and Timmy are thinking of getting the Federal Reserve into the insurance business with their magic money machine as well.

Are these jokers this brazen or are we just that dumb?

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Re: Bond insurers want $125 bln of cover wiped out -FT

Yikes.

Thanks.