Monolines grew in importance and power in tandem with the rise of mortgage backed securities.
FORBES: Left Overs of the Financial Crisis: Last Monoline to Lose AAA-Rating
Assured Guaranty was the last of the monolines to still have its credit rating intact.
FORBES: Left Overs of the Financial Crisis: Last Monoline to Lose AAA-Rating
Banks bought protection on credit derivatives from monolines in the form of credit-default swaps.
This would drag down the value of securities the monolines have guaranteed and increase the banks' write-downs.
Were the monolines to lose their top-notch ratings, they fear, many issuers could struggle to meet higher funding costs.
Recently, the last of the bond insurers, or monolines, lost its AAA credit rating, marking the possible extinction of such businesses.
FORBES: Echoes of Abacus: JP Morgan to Face SEC Probe Over CDO Transaction with Hedge Fund
Moreover, monolines will have to raise more capital if a sizeable chunk of their holdings falls below investment grade, as looks painfully possible.
Assured Guaranty, and the other big monolines like MBIA and Ambac Financial Group, use credit default swaps and other credit derivatives to insure bonds.
FORBES: Left Overs of the Financial Crisis: Last Monoline to Lose AAA-Rating
The monolines know that, by threatening to break apart, they may force Wall Street banks to stump up the cash to keep them whole.
Before the monolines ran into trouble with exposure to credit derivatives and structured products in late 2007, they enjoyed a robust business insuring municipal debt.
The monolines moved into insuring collateralised-debt obligations (portfolios of bonds that are sliced and diced into tranches bearing different risk), and that got them caught in the subprime crisis.
Out of the many things the housing bubble and subsequent financial crisis marked with the scarlet letter, monolines, or bond insurance companies, have become one of the last to finally fall from grace.
FORBES: Left Overs of the Financial Crisis: Last Monoline to Lose AAA-Rating
If one of the monolines were to lose its cherished AAA rating a prospect that no longer looks far-fetched huge numbers of securities would be adversely affected, since they cannot have a higher rating than the company insuring them.
应用推荐