Thursday, December 20, 2007

Shitpile Squared

And another bond insurer is likely to go tits up.

Dec. 20 (Bloomberg) -- MBIA Inc. tumbled the most since 1987, and the risk of default soared after the world's biggest bond insurer revealed that it guarantees $8.1 billion of collateralized debt obligations repackaging other CDOs and securities linked to subprime mortgages.

Credit-default swaps tied to Armonk, New York-based MBIA's bonds climbed 115 basis points to 595 basis points, the widest on record, according to CMA Datavision in London. MBIA shares plunged $4.73, or 18 percent, to $22.29 as of 9:38 a.m. in New York Stock Exchange composite trading.

MBIA posted a document on its Web site late yesterday showing it insured the so-called CDOs-squared, a potentially riskier form of security than what the company typically guarantees. Rising defaults on subprime mortgages packaged into securities have led to bond downgrades and threatened MBIA's AAA guaranty rating.

In case you were wondering what a CDO-squared is, it's when you have a piece of Big Shitpile (CDO) and you issue debt using it, or pieces of it, as collateral. Bad debt issued on top of bad debt.