Moody’s is having a look at the "AAA" rating carried by bond insurance firm MBIA (MBIA).
MarketWatch writes that "Bond insurers agree to pay principal and interest when due in a timely manner in the event of a default. It’s a $2.3 trillion business that offers a credit-rating boost to municipalities and other issuers that don’t have AAA ratings."
Unfortunately, MBIA and its peers have guaranteed a lot of paper for pools with subprime mortgages, and their stocks have reflected that with big drops.
It’s hard to a bond insurance company to insure a bond that does not have a "AAA" rating when the bond insurance firm does not have one itself.
Douglas A. McIntyre
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