No honour amongst thieves

It was not quite a year ago that Guambat was crying in his beer

because the markets continue to forge higher as the frantic hand signs and pointing and scratching of heads of the people who believe they know where this is going end up throwing hands up in the air in capitulation.

It seems any little pull back is met with another shove higher. Randy Newman was right: short people got no reason to live.

Guambat has become confused by the disparity between seeing a bearish roadmap in his head but finding all the money pointing to bull heaven. Thus Guambat continues to try to come up with rational directions that lead to a bear market whilst the market goes on its own merry own (irrational??) bullish way.

Indeed, had money been placed on a bear market unfolding over the last several years, that money would have been foolishly wasted, or perhaps, unfoolishly wasted. But wasted either way.

One of the tip-offs that things were becoming dicey was that MBIA's Triple A rating was being threatened with a downgrade. As Guambat related in that post,

Without guarantees, $2.4 trillion of bonds may fall in value and some issuers would get shut out of the capital markets.

"We shudder to think of the ramifications," said Greg Peters, head of credit strategy at New York-based Morgan Stanley, the second-biggest U.S. securities firm by market value. You have politicians, taxpayers, municipalities, states. It just opens up a Pandora's box. That is a huge destabilizing force."

Only a couple of months later, Guambat was beginning to doubt Randy Newman.

Guambat isn't saying that the situation facing the markets at the moment is the functional equivalent of the 1987 tempest (which was a zigzag in what has shaped up to be a long, long bull run, not any kind of 1929 crash).

Who knows?, it could get worse.

It turns out, despite the protestations of the mucky-mucks at MBIA (and elsewhere),

MBIA Inc. and Ambac Financial Group Inc., the two biggest bond insurers, have a more than 70 percent chance of going bankrupt, credit-default swaps show.

Tapping into Yves Smith at Calculated Risk, Guambat related as how

A downgrade of MBIA or Ambac will have vastly worse consequences than the bankruptcy of Countrywide would have. Yet there is widespread belief that the government played a hand in the staged purchase of Countrywide by Bank of America, possibly to forestall the losses to the Federal Home Loan Bank system.

It wasn't many days before

The stock of bond insurer MBIA Inc., which took a beating last week, now looks cheap, Barron's said on Sunday. [Hint: it got cheaper; much cheaper.]

Notwithstanding the turbulent times, MBIA's management encouraged the investment of a billion dollars by those savvy guys at Warburg Pincus to prop up MBIA's business, saying:

The Company believes that mark-to-market losses are not predictive of future claims, and that in the absence of claims, the cumulative marks will net to zero over the remaining life of the bonds insured. The Company has not paid losses on any of the marked transactions. The mark-to-market also does not affect rating agency evaluations of the Company's capital adequacy.

Just what relevance that statement might have in the current climate to gaggle the mark to market rule, Guambat wouldn't hazard a guess. Just deep scepticism. But, in consequence, MBIA is now trading w-a-y under the prices Warburg paid. They mightn't be very happy chappies about that.

So, anyway, all that is background to this latest "challenge" to Bank of America, which purchased CountryWide and more recently Merrill Lynch in a cakewalk fairy tale of picking up the field mice and bopping them on the head.

Business in the Burbs: MBIA sues Countrywide

Lax lending standards and fraud by the giant home lender Countrywide Financial Corp. contributed to thousands of home mortgages going into foreclosure during the housing bust, leading to major losses for bond insurer MBIA Inc., according to a lawsuit filed by MBIA.

MBIA alleges in the suit that its insurance unit incurred $459 million in costs related to the bad loans at Countrywide and that additional claims exceed several hundred million dollars.

MBIA's insurance unit provided guarantees on billions of dollars of trust obligations of Countrywide mortgage-backed securities, but would have not done business with Countrywide if it had known about the lax standards, according to the lawsuit.

Countrywide's questionable practices included "knowingly lending to borrowers who could not afford to repay the loans, or who committed fraud in loan applications, or who otherwise did not satisfy the basic risk criteria for prudent and responsible lending that Countrywide claimed to use," the suit reads.

A spokeswoman for Bank of America Corp., which bought Countrywide earlier this year, declined comment on the case.

Well, really: What could you say?


FOLLOW UP:

After reading a Barry Ritholtz post today, Guambat might suggest an answer to his own question. The answer might be "Full disclosures were given".

Barry produced a photocopy of a 2003 National Mortgage News article reporting on a speech by CountryWide shill Angelo Mozilo in which he is reported to say that downpayments were nonsense and credit score [requirements?] too high. He berated those who focus on delinquencies, and encouraged his colleagues to "take a chance on making mistakes". He said they should get people into homes "for selfish reasons".