Bond Guarantors Under Investigation; Are More Pressing Concerns Mounting?

The Wall Street Journal reported Monday that Connecticut Attorney General Richard Blumenthal has expanded an investigation of “subprime lending” to include some bond guarantors, although specific firms were not named in the story.

“There are a lot of issues that have been highlighted by the ongoing crisis in the debt and securities markets,” he [Blumenthal] said. “It’s like a cancer that has metastasized into different areas.”

Mr. Blumenthal’s office is also looking into the underwriting and packaging of loans by investment banks and credit-rating firms and has sent more than 30 subpoenas. He said his staff has reached “no conclusion” as to whether any laws were violated.

A cancerous reference to bond guarantors’ role in mortgage banking may turn out to be the less immediate concern, however, if Yves Smith at Naked Capitalism is drinking the right color of Kool-Aid. Smith, citing a presentation by an outside investor, says it will take $7 billion per guarantor if MBIA and Ambac want to maintain their current ratings.

The revelation that prying eyes are now looking into bond guarantors’ role in the credit crisis comes on the heels of a story over the weekend at the New York Times that revisited NY AG Andrew Cuomo’s inquiry into disclosure practices at Wall Street’s largest issuers.

That story suggested that “charges could be filed in coming weeks.”

Disclosure: The author held no positions in MBI or ABK when this post was originally published.