Buffett Bonds

Reuters/NY Times:

Billionaire investor Warren Buffett is set to launch a bond insurer targeting local governments, seeking to profit from troubled credit markets, the Wall Street Journal reported on Friday.

The new bond insurer, Hathaway Assurance Corp. is set to start operating on Friday in New York state, and guarantee the bonds that cities, counties and states use to finance public works, the report said, quoting Buffett from an interview.

Buffett's Berkshire Hathaway Inc owns some 50 businesses, including auto insurer Geico Inc. Buffett and Ajit Jain, who heads Buffett's insurance businesses, will also seek approval to operate in California, Puerto Rico, Texas, Illinois and Florida, the report said.

Berkshire representatives were not immediately available for comment.

The report comes amid warnings from credit ratings agencies that some major insurers, including Ambac Assurance Corp. and MBIA Inc. , may lose their triple-A ratings due to exposure to subprime mortgage debt.

Buffett's new venture is almost certain to be backed by a triple-A credit rating, the report said.

...

This is a timely move and should be good for the municipal finance business. Amback and MBIA were hurt because they were no better at analyzing the risk of the subprime mortgage business than the investment bankers who have lost billions. They may also have been victims of the fraud that has been perpetrated in the mortgage business. If Buffett focuses on traditional public finance credit instruments he should make good money at little risk and save local governments substantial interest costs at the same time. That is the traditional role of the credit insurers.

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