MBIA Restructuring: This Is How Pigs Get Slaughtered

Justice is served when scammers are left holding the bag.

Let my beloved come to his garden...
—Song of Solomon

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To everything there is a season. With trillions of dollars of derivative securities showing losses totaling hundreds of billions of dollars, time has come for someone to be left holding the bag. The likelihood this moment of truth one day would arrive has been widely known for at least the past ten years, if not longer. Don't let any Wall Street big wig deceive you. Those who today feign surprise over the severity of the recent crisis are either ignorant or lying. And you don't become a CEO of a major Wall Street firm being ignorant, right Mr. Dimon?

Now, we are all well-aware how taxpayers are being made to shoulder an extraordinary burden as a consequence of greed run wild on Wall Street. There simply is no way to sugarcoat the decades-long build-out of asset-backed securities markets. Someday, history will recognize the most magnificent Ponzi scheme ever concocted. Those like Barney Frank claiming a securities-based financial system is a boon will be known in the annals of American history for what they are: duplicitous. There is no excuse for ignorance of the Law upon which this nation is founded.

Some in government, however, apparently understand that, despite certain financial enterprises becoming hopelessly compromised by the structured finance Ponzi scheme, there still are valuable pieces of these businesses worth defending at all costs, even at the price of big interests being left twisting in the wind.

Take, for example, MBIA, traditionally an insurer of municipal bonds whose business got caught up in the game of structured finance insuring all manner of 3-letter securities manufactured on Wall Street, all for the lure of fees padding its bottom line. Given growing pressure on MBIA's business resulting from the seizure of OTC derivatives markets, the need to separate the wheat from the chaff has led MBIA to restructure. Its municipal bond insurance unit is now a separate entity. The revenue streams from this business no longer co-mingle with its securities insurance business. Thus, the creditworthiness of MBIA's securities insurance business has been downgraded and holders of structured securities MBIA insured stand at greater risk of loss.

Some of the larger interests affected are challenging the legality of MBIA's restructuring. In this highly-charged political environment? Bad move! The message this sends — the lesson revealed to the well-trained financial observer — is plain. There's an old Wall Street adage: "Bulls make money, bears make money, and pigs get slaughtered." Could there possibly be a more fitting demonstration of this adage at work?

—Tom Chechatka