Saturday, December 29, 2007

Buffett moves into bond insurance

In my article on the 21st December I indicated that Berkshire Hathaway could take the opportunity, caused by the capital problems facing MBIA & Ambac, to make a move into insuring municipal bonds.

Well Buffet has decided the time is right to make that move. Please see link below for the story.

Insuring bonds raised by states and local governments to finance public works, schools, roads and the like is a good business. Unfortunately MBIA and Ambac didn't have the good sense to stick to this business , and instead they made an ill-fated move into CDOs and the like.

Berkshire Hathaway will no doubt be careful about the risks they take on but municipal bonds are generally safe and you can expect Berkshire will get good pricing on the premiums it charges. After all, Berkshire Hathaway has a solid "Rock of Gibraltar-like" balance sheet, unlike other competitors.

Berkshire's entrance will also provide stability to municipal bond pricing which is good for everyone from bond investors to states and municipalities and their residents.


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