I am sure that most of you are aware of the monoline mess.  The recent back and forth in the media, with Buffett offering to "save" these insurers, and the New York regulators demanding a "good company / bad company" split being the latest headlines. 

Folks, in my opinion, its all one big negotiation.  Just in case someone has not yet noticed, Buffet's offer was completely unrealistic, and I think very deliberately so.  In vulture capitalism, sometimes it pays to hasten the inevitable expiration of one's future meal, and that was his intention.  It has succeeded.

 Now the State of New York has made their own dramatic, headline-grabbing pronouncement.  Either restructure in a few days, or split out the municipals, leaving the "rest" of the obligations in a separate entity.  It is clearly taking off from Buffett's offer, and is the State's bid to take care of their needs.  Municipalities do not want to see liquidity for their instruments go down the tubes, and rates go up.  So they are grabbing for their's ASAP. 

So who is losing in all this, so far?  The Banks and Private investors!  A split of the monolines would be a disaster for them, and would take us through a new round of write-downs.  And I am not just talking about the nasty CDO squared / subprime garbage.  I am talking about all other non-muni debt insurance.  Because, you will see your insurance policy stuck in a doomed shell of a company, where  you clearly cannot hope to gain anything from paying future premiums. 

So best case, the States "win" by forcing the split, and the private companies see the insurance gimmick basically go away overnight. 

But its not over yet!  I predict we enter a second round of negotiations, where the bankers go to court, to keep this from being a one-sided process.  If one looks hard enough, you can see certain attorney quotes, confirming this as an inevitability. 

But no matter what, someone is going to lose.  There is simply not enough capital to cover NEARLY all the obligations these con-artists insured. 

At this time, the munis have the upper hand, because they can use their regulatory muscle to force this through, and make it a fait accompli. 

That means the banks and private investors are going to lose.  The hand is around their throats, and they have little time to get their wind back.  So in my opinion, this would not be a good time to buy financials. 

Yes folks, if the States succeed in taking care of themselves, we will very quickly enter a second round of credit write-downs. 

Are you ready?