Buffett Offers Hope to Struggling Bond Insurers
An article published in The Australian takes a look at Berkshire Hathaway chairman Warren Buffett’s position to benefit from the credit crisis by offering financial support to bond insurers. According to the article:
With more than $US45 billion in cash on its books, a triple-A credit rating and decades of experience insuring other insurers against catastrophic losses, Berkshire Hathaway is in a strong position to provide relief to some of these companies and could get into the bond insurance business itself, observers say.
In recent weeks, every major bond insurer has reached out to Berkshire - In the process of pleading their cases with Berkshire, these companies enable Buffett to size up their businesses.
This is a bad time to raise capital through the stock or debt markets, in which most investors are trying to steer clear of any exposure to sub-prime risk.
That’s where Buffett comes in. Berkshire, as the only triple-A-rated reinsurer in the world, has long been willing to write insurance policies on risks that nobody else will touch.
“Using reinsurance is clearly a way the industry can help improve their capital positions,” Thomas Abruzzo, managing director at Fitch Ratings, says of bond insurers. Buying reinsurance could be enough to save the ratings of bond insurers that have only minimal shortfalls in capital.
This is good news to lenders and all the people who have been fearing a recession because of the subprime crisis. If bond insurers can get the temporary, but necessary financial help that they need, we just may be able to pull through the current crisis with our financial system still very much intact (which may make it easier for those with ARMs to pay off mortgage debt). If it doesn’t work out, however, then the future of the U.S. economy looks depressingly bleak.
November 16, 2007 | Filed Under Pay Off Mortgage
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