Thursday, December 20, 2007

What happens if all those CDOs are uninsured?

It’s quite possible. Today, bond insurer MBIA announced it has more exposure to collateralized debt obligations than its entire net worth.

MBIA said it has exposure to $30.6 billion in complex mortgage securities that it insures, an amount that eclipses its entire net worth, … (including) exposure to $8.1 billion of collateralized debt obligations, or CDOs, including mostly risky debt known as CDO squared, or CDOs backed by other CDOs, it reported on its Web site late on Wednesday. The company's net worth as of September 30 was $6.5 billion.

Meanwhile, Morgan Stanley’s mix of real indignation over the under-insuring, mixed with faux indignation about another company besides Morgan Stanley cutting corners on investments, sounds like it comes straight from a reel of “Casablanca”:
“We are shocked that management withheld this information for as long as it did,” Morgan Stanley said in a report, referring to the CDO-squared exposure.

Shocked that there’s gambling in this loan-based securities establishment!

Meawhile, Bear Stearns posted its first quarterly loss in history.

I’m sure the bulls on the Street are trying to do their latest spinmeistering as we speak.