When bond insurers lose credit

Steve Henn Jan 31, 2008

TEXT OF STORY

Scott Jagow: And then, we have this: The bond insurance company MBIA said it lost more than $2 billion in the fourth quarter. Now before you decide this doesn’t concern you, have a listen to our man in Washington, Steve Henn.


Steve Henn: Bond insurers, like MBIA, basically are in the business of selling their good name. If a city wants to build a new library, but can’t get a triple-A bond rating and the low interest rates that go with it, city managers will go to a bond insurer like MBIA and basically pay a fee to use the company’s good credit rating.

But in the last few years, these bond insurers got in the business of insuring big bundles of subprime mortgages loans. Now, they’ve lost billions.

And Ray Perryman at Perryman economic advisors says their good names have been soiled:

Ray Perryman: There is clearly an incremental drop in the perceived security of these bonds.

You may not own municipal bonds, but big banks and insurance companies do — $2.4 trillion worth.

If MBIA loses its triple-A bond rating, it would burn institutional investors and send another shock wave through the economy.

In Washington, I’m Steve Henn for Marketplace.

As a nonprofit news organization, our future depends on listeners like you who believe in the power of public service journalism.

Your investment in Marketplace helps us remain paywall-free and ensures everyone has access to trustworthy, unbiased news and information, regardless of their ability to pay.

Donate today — in any amount — to become a Marketplace Investor. Now more than ever, your commitment makes a difference.