Buffett Offers to Pick the Carcass of Bond Insurers

It seems that Buffett is up to his old tricks again.

Billionaire investor Warren Buffett said on Tuesday he has made an
offer to the three top bond insurers to reinsure $800 billion (409.8 billion
pounds) in municipal bonds, but one of the struggling companies has rebuffed the
plan while the other two have yet to respond.

Of course those bond insurers know that their muni insurance is pretty solid and the risk of defaults on munis are at 1% or so. They also know that insuring munis are about the only thing left at these companies that is still profitable. If you strip that away all they would have left are a bundle of worthless CDOs. And without the fees generated by the munis, and left with the downgraded AAA ratings that they would get from losing their low risk/high reward business, these companies could quietly fail. That is not such a bad idea for Buffett since he is opening his own bond insurer.

There is nothing better then cutting away the most profitable part of a business then perhaps getting a near monopoly in muni underwriting all while looking like the savior of Wall Street. No wonder this guy is a billionaire.