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MBIA


T-bone1
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There had been some discussion (I think in the FAIRX thread) of MBIA.

 

Basically, Marty Whitman lent MBIA a bunch of money, MBIA gave it to their insurance sub, and then told Marty that the entity he lent the money to was BK. The insurance regulators went along with this because it made the insurance that had been sold safer and helped contain the problems at MBIA.

 

I (and Marty Whitman, who is suing) think this is a textbook case of fraudulent conveyance, i.e. you can't take out a million dollar loan, give the money to your wife, then declare BK . . . this transfer would be considered fraudulent and clawed back in bankruptcy, much like the money Madoff paid out to "clients" over the last 6 years.

 

Credit Sights (who I think is a very smart group) apparently thinks that Whitman will lose and that there is now precedent for the insurance regulators superceding existing bankruptcy and contract law. They wrote:

 

"We believe there is a somewhat high probability of the split being upheld given the recent precedents of insurance law favoring decisions made by the Superintendent.  However, if the decision is overturned, we believe the entire company will head into run-off mode, as the lack of capital will not allow the maintenance of ratings necessary to write new business.  Current liquidity at the holdco can only support debt service and repayments until about 2015. "

 

I guess this is Berkowitz' thesis. I don't agree with it and I think it is a terrible precedent and one more sign that America is going to sh*t, but CreditSights and Berkowitz have more knowledge and resources to handicap this court case than I do.

 

I have the utmost respect and admiration for Berkowitz, and I have no position in the stock, but I hope his MBIA goes to zero for the sake of law and business in the US. If your largest shareholder lends you money to help your company avoid catastrophe, you shouldn't be allowed to steal it with the help of the US government just because it is politically expedient

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I agree.  The current situation stinks, but TAF's Deleware lawsuit was dismissed for lack of jurisdiction.  The banks have a similar lawsuit in NY.  How is it progressing?

 

The most important aspect of a case like this is the venue.  It's possible the NY courts may favor the Insurance Commissioner's ruling because of the latitude given to him by NY law, despite the iniquity.  Does TAF have legal options?  Also, was not there a Federal Lawsuit filed about the same conveyance?  How does it stand and what are it's merits?

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