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Bond Insurer Rescue ??....OPEN ISSUES...just around the corner...

August 6, 2008

Analysis of:Merrill, XL to bail out struggling bond insurer | www.reuters.com

Merrill Lynch and XL, Citigroup and Ambac "Commutations" illustrate problem of blindly applying P&C Insurance concept to CREDIT risk and the CAPITAL MARKETS. Grappling with one issue at a time, in separate policies, silos and islands DOES NOT solve the problem, when they are ALL tightly related. It's all about CREDIT [NOT "insurance"]. Like Merril and SCA, AMBAC paid $850 million to be relieved of $1.4 B CDS exposure. HOWEVER: what about the rest of Ambac's $250 B Structured Finance portfolio? Whether in Financial Guaranty OR CDS form ..."economics over policy form, accounting".

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