The Golden Truth: Ambac Bond Default

Monday, November 1, 2010

Ambac Bond Default

Anyone besides me find it fascinating that the market is ignoring the Ambac bond default announcement? This could have significant ramifications in the financial derivatives and fixed income structured finance markets. Problems with Ambac and MBIA helped precipitate the first leg of the U.S. financial nuclear meltdown back in 2008. Ambac/AIG/MBIA et al were quickly "papered over" by the Fed and the U.S. Taxpayer. It was merely kicking the can down the road. The can in the road is now back in sight and it's named "Ambac."

This morning Ambac announced that it would not make the interest payment on some of its bonds today. It also announced that if it can not agree to a pre-pack restructuring, that it will file Chapter 11. Here's the press release: LINK

This is not good. Ambac provides credit default insurance to the structured finance markets. We know a large portion of this is riddled with extreme fraud. Ambac has payment liabilities to the extent that investors experience losses on their structured finance investments.

All these transactions are entangled with derivatives. From the above link: Hedge funds that say they own more than $1 billion of residential mortgage debt insured by Ambac Assurance are suing Ambac to prevent it from siphoning assets from that unit.

Ambac also provides credit insurance to the municipal bond industry. This situation with Ambac could well cause big problems with Ambac's ability to fulfill, not only its structured finance obligations, but its municipal bond market obligations as well. From the same article: Fabian said Ambac can "at least for now" still cover most claims in the municipal market, but may have trouble in the longer term.

A Chapter 11 filing will create complete legal and financial chaos that will ripple throughout the market. It will hammer the housing market again. Possibly the proverbial "straw/camel's back" that we all know is coming. I would pay close attention to this Ambac development. I have said for quite some time now that anyone who has a lot of their wealth tied up on muni paper is taking on a massive amount of risk that is impossible assess.

This stiuation will hasten the capital flow out of paper and into gold/silver/mining stocks.

8 comments:

AnonymousMonday, 01 November, 2010
"America's Bright Future After U.S. Treasury Debt Default"
http://wallstreetbear.com/board/view.php?topic=75731&post=263234

JJ from WSB
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Dave in DenverMonday, 01 November, 2010
I hope you're right JJ. Unfortunately, per history, the political/social chaos that ensues after a financial/economic collapse is not "bright."

Maybe this time it will be a unique datapoint in the database of history...but I doubt it...
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AnonymousMonday, 01 November, 2010
Dave,

I didn't write that article. I cited it.

Personally, I am not sure if it will be "bright." At least, there will be some pain or adjustment in the process.

However, the article carries some very important points: various forms of default is always part of the debt solution; and, despite all of the negatives, a financial breakdown also gives a fresh start.

JJ
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AnonymousMonday, 01 November, 2010
I think we've all been duped Vancouver-style on
The Silver Dragon.
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Dave in DenverMonday, 01 November, 2010
Can't help you there Anonymous. If that's what you really believe that's your right. If you go to the website and look at the roster of "heavyweights" who have joined the Strategic Advisory Board" and the Board of Directors in the last 6 months, then it means there are some very sophisticated, well-connected mining market professionals who have been "duped" as well.

My personal view is still intact and that's that this stock is going to go a lot higher.
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AnonymousMonday, 01 November, 2010
Can you name these heavyweights and what theyve done in the past?
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Edward Ulysses CateMonday, 01 November, 2010
There's a related commentary here:
05/30/2008 - Moody's AMBAC MBIA Junk
http://GreatRedDragon.com

The same major holders of JPM and GS are also major holders of AMBAC and MBIA. Their inside trading desks trade against their clients. In other words, they lie to their clients in order to steal from them. And they blame their clients for not figuring out that they are being lied-to. As was written back then:

"Well, well, well. What we've always suspected is now publicly documented. Insiders get one set of books, the public gets the other "official" set. Ah, the joys of having our country turned into a casino."
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EconomicDisconnectMonday, 01 November, 2010
Will Ambac be the next major failure that was ignored just like the beginning of the subprime debacle? Who knows but this is a big deal. Also of note Kid Dynamite covers the Wilmington Trust sideshow which is important:
http://tinyurl.com/347e9bl
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Why Gold?

Gold is the world's oldest currency. You exchange your fiat currency (dollars, euros, yen, yuan) into gold as an insurance policy against catastrophic Central Bank and Government policies which serve to destroy the value of fiat currencies and destroy democracy.

Gold can ONLY be considered an investment to the extent that it remains significantly and historically undervalued in relation to the fiat currencies against which its value is measured. Otherwise it remains the world's oldest currency and is completely free from the counterparty risk associated with currency by Government fiat (i.e. fiat currencies rely on a Government's "full faith and credit.")

Quote Of The Month Courtesy of "Jesse"

Unfortunately for Larry Summers, Ben Bernanke, and their friends at the BIS, they have not yet figured out how to print physical gold, silver, and other essential commodities, and the world is reaching the point where it might simply start ignoring the New York based markets with respect to essential commodities such as basic materials, oil, foodstuffs, and the like, as they become increasingly irrelevant, fraudulent, and Orwellian. And then where will the financial engineers be, except with no more excuses and no place to hide?

Here is the link to his entire commentary, well worth a read:

http://jessescrossroadscafe.blogspot.com/2010/07/gold-daily-chart-shock-and-awe-for.html

Great Quote From Jim Rogers On Govt CPI Reporting

JR: I mean, we have inflation now. If you go to the shop, whether it’s groceries, or education or insurance or health care, prices are going up for everything. The government lies about it in the US. Some countries lie, many countries don’t: Australia, China, India and Norway. Many countries don’t lie about it and acknowledge that we have inflation. Others lie about it, the UK and the US, but if you go shopping you know prices are up.

Q: Are you saying that the American Consumer Price Index (CPI) published by the US Bureau of Labor Statistics is a lie?

JR: In my opinion, yes, of course it is. Have you looked at it? They’ve changed their accounting several times in the past few decades. When housing was 20% to 25% of the CPI and housing was going up, they didn’t count it, saying rents weren’t going up, and then when home prices started going down, they counted it. It’s the same with many things. It’s staggering some of the tortuous reasoning that the BLS has used over the past 25 or 30 years. When the price of gasoline goes up, they say it’s not really going up because it’s better gasoline, better quality, therefore you’re getting more for your money. I mean, it’s endless, the stuff that they say and for some reason people sit there, although more and more people are catching on, and accept what the government says.

source: www.clusterstock.com

Quote of the Week

"The primary function of a Central Bank is to engage in the massive transfer of wealth from the middle class to the wealthy elite. The Federal Reserve was set up to do this with the blessing and support of Congress." - Dave in Denver

If you refuse to believe the above, please read "The Creature From Jekyll Island: A Second Look at the Federal Reserve" by G. Edward Griffin and then explain to me why the Senate voted down the Vitter Amendment and Congress refuses to pass a law requiring a full audit of the Fed, even though the Fed is using taxpayer-backed money to bailout Wall Street and Europe.