walkitout (walkitout) wrote,
walkitout
walkitout

Not a review: _Confidence Game_

Finally got a winner here. Lots of fun. However, I am slightly confused. As near as I can tell from the description of MBIA's business model, they were selling insurance that no one needed (because the actual insurer was the taxpayer) and if you _did_ need it, they probably couldn't pay out on it (because of their degree of leverage. Seems like a waste of money to me, but I know all kinds of people buy the wrong kinds of insurance so no surprise they could find takers on this stuff. Oh, and implemented illegally, with phony accounting, if the stuff about LaCrosse, the SVPs, and the CFO being in the dark about at least the former are all to be believed.

Here's where I am confused. If Ackman was buying credit default swaps based on an expectation that MBIA would go under, and he even _suspected_ that some of those swaps were being sold by MBIA, why did he keep buying? His counterparty risk is insane, right?

Ackman does make mistakes (big ones: he sold out of JCP this summer -- I'm not saying the sale was a mistake, mind you -- and his time frames on many of his earlier successful bets were way off and that cost him a lot), so it's possible this was a mistake. But he also understands the technical issues of these kinds of trades, which I really do not. I believe there was collateral involved -- but what was it? Wouldn't you kind of want to know? Altho asking that question is sort of getting a bit ahead of things.

I expect the mystery will be revealed in time. Also, wow, further evidence of lack of Adult Supervision in important activities.
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