I read today somewhere that stated Buffett has offered to insure the municipal bonds. I’m not a markets person, so I don’t understand how that works, but isn’t that similar to JP Morgan pouring his own funds into the market before the crash that led to the great depression?
Can someone explain this for me please…
This is a complicated deal.
Warren has offered is to insure the insurance end of the bonds.
When as muni bond is sold, an insurance policy (so to speak) is taken out in the event that the State or cCty fails to pay. This insurance is there becuase highly rated bonds WERE thought to be almost risk free. The investors who buy those bonds need someone to turn to in the event a City of State can not pay. These bonds would be very hard to sell, and rates would be too high for States and Cities to pay, without this insurance. If the State fails to pay the insurance kicks in. Warren is offering to pay, IF the INSURANCE company fails to. Now let me make one thing clear, these aren’t insurance companies we’re talking about here. Their sole business is bonds.
As of Wednesday morning they passed on Buffetts offer.
This is a lot of smoke. It would have been a shrewd move on Buffets part but what he was offering is an insurance policy on an insurance policy.