Four companies Ambac, MBIA, Financial Guaranty Insurance Company and Financial Security Assurance have guaranteed asset-backed securities, such as collateralised debt obligations and credit derivatives, worth $160 billion.
It enables Citigroup to treat the guaranteed assets as being relatively safe, thereby improving its apparent capital position.
To anyone who has studied the private finance initiative, this story - of guaranteed assets and reduced liabilities - will be familiar.
Of these guaranteed assets 16.2%, or $77.0 billion of the total amount guaranteed, is classified as multi-sector, which actually includes Alt-A as well subprime.
Ricardo Caballero was busily arguing during this whole discussion that the government ought to guarantee asset prices five years out, because if we could only get bank stocks up, everything would be fine.
NEW YORK TIMES Banks Look to Investors to Offload Risk | As they work to meet new regulations, banks are making deals with investors to partially guarantee assets, so that the banks do not have to hold as much capital against losses, The Financial Times reports.
That flash point in September 2008 caused the U.S. Treasury to put a floor under money market funds, effectively guaranteeing assets held in money funds prior to the announcement.
The financial sector, which is still living off an array of hidden government guarantees, asset purchases, and cheap money, is making enormous profits again.
See articleBank of America paid $425m to leave a federal programme that guaranteed the assets it acquired when it took over Merrill Lynch.
