After Ambac’s bailout went bust, what can possibly help the struggling financials?
CNBC’s Charlie Gasparino never believed in the viability of this bailout to begin with – and he certainly wasn’t surprised when the market showed its disappointment on Wednesday.
The bond insurers’ problems are grave, Gasparino said. The overall environment is extraordinarily difficult, they already have bruised reputations, they can’t insure collateralized debt obligations anymore since that market is obliterated and now they have to go to the municipal bond market, in which insurance is shrinking. That’s a set of problems that isn’t going to be easily fixed – certainly not by a paltry $1.5 billion capital infusion, according to Gasparino.
But it isn’t that bond insurers like Ambac and MBIA have become irrelevant. It’s that as bad as their problems are, they still pale in comparison to the massive de-leveraging going on in the broader financial sector. Fixing the bond insurers won’t be a panacea for Citigroup , Merrill Lynch or the other big banks struggling to stem the tide of write-downs.
The plan to bail out Ambac was a “joke from day one,” said Gasparino. The bottom is still nowhere in sight.
Watch the video to see Karen and Charlie's spirited debate on the bailout plan: