A Bail-Out For Bond Insurers? (MBI, ABK)

Watch for a big run-up in Ambac (NYSE: ABK) and MBIA (NYSE: MBI) tomorrow. These stocks had major run-ups today in the last 90 minutes of trading as word of this began coming out, and may be part of the 500+ point run in the DJIA off of the lows. The FT reported that "the largest US banks are under pressure from New York State insurance regulators to provide as much as $15bn in fresh capital to support struggling bond insurers."

We have noted that many incentives are probably being handed to out because the implications of any major institutions failing would potentially be much worse than the Enron implosion.  This even went as far as "financial mergers may be mandated rather than just preferred" if you buy into the bailout theme.  Maybe even Warren Buffett might be considering a package if it makes financial sense for Berkshire Hathaway.  Barron’s also recently scored a huge home run for anyone who purchase MBIA Inc. (MBI) shares after its undervalued article from this weekend. After the troubles surfaced last week, the harsh reality of what could happen to our financial system started to come into play.  Without a Fed intervention yesterday and without more accommodating policies, we might have even seen a 1,000 point drop in the DJIA.

The only problem with the plan is that the banks don’t have anymoney, or at least they are holding what they do have.

Douglas A. McIntyre