Warren Buffett's offer to reinsure $800 billion of municipal bonds insured by bond insurers is a positive for the capital markets, Bill Ackman, founder of Pershing Square Capital Management, which has sold bond insurer shares short, said on CNBC.
Bond insurers are at risk of losing their top credit ratings, and in some cases already have. Downgrades may force investors in insured bonds to sell their securities, forcing bond prices lower and lifting borrowing costs for cities and consumers. (To hear the full interview, watch the video to the left.)
Reinsurance for the municipal bonds could prevent forced sales, which would be positive for the markets, Ackman said. Earlier Tuesday, Buffett disclosed he had offer to reinsure the municipal bond portfolios of troubled bond insurers MBIA , Ambac Financial , and FGIC.