Amabac, a monoline insurer that go into making guarantees of MBS (mortgage-backed securities) that were holding subprime assets that were highly over-valued on a risk basis. Because of the amounts of payments they have been making against this insurance on bad assets, regulators have now stepped in and taken these assets off their books so the core municipal bond insurance business (hence the name monoline) is not affect. If they could not provide that insurance, it would wreak havoc on the municipal bond market.
I wonder what the regulators and going to do with these greatly depreciated assets they are now holding that are worth over $64 billion dollars?!?!
The regulatory seizure of toxic guarantees that Ambac Financial Group sold through its insurance unit will trigger payments on credit default swap hedges banks and others had entered on the contracts, the International Swaps and Derivatives Association said on Friday.
Regulators in Wisconsin said on Thursday they were taking control of roughly $64 billion of the worst assets of Ambac Assurance Corp in a move that will preserve cash for municipal and other policy holders, while avoiding making full payments on the toxic portfolio.
Analysis: We may be seeing the next leg down in this Great Recession and it could turn into the Great Depression. Sure, we can prop up the economy but until we can exit it is not a real recovery.