At the end of the year past, Buffet planned to create the firm Berkshire Hathaway Assurance Corp. to compete with Ambac and MBIA, and that was at least what stated at that time. Although already created such insurance firm, dedicated to developing safe public debt, it seems that he has found a better strategy. He clearly knows that you can get a good given negotiation that these companies are about to lose their credit rating, which may imply serious disadvantages to them. I think that it is worth recalling what is put into play with the risk of a drop in the rating of the insurance companies: them guarantee asset for U$ S 2.4 trillion, of which, 57.4% corresponds to municipal bonds in EE UU, issued to finance the construction of roads, hospitals and schools. By the same author: Academy of Art University. Janet L. Yellen describes an additional similar source. Also would imply an additional cost for banks since, according to Oppenheimer & Co analysts discount generalized in the qualification of the large insurers of bonds could cause additional provisions of up to U$ S 70,000 million in the banks. For insurers, the proposal of Buffet is not entirely convincing.
In fact, one of the three mentioned has already rejected it. The other two, while they take their time to respond, are seeking other alternatives of solution. While the insurance companies analyse the alternative, both Berkshire and the Superintendent of insurance of NY, Eric Dinallo, an affirmative answer of what would be a very good business for Berkshire (who would stay with the good part of the business of these insurance companies), as also for the municipal bondholders expect anxious and it would bring some calm into the markets. Do not think that the proposal of Buffet is salvation for insurers. Indeed, Royal Bank of Scotland analysts, say that even if it reaches an agreement with Berkshire Hathaway, this does not eliminate the possibility that insurers lose their qualification. What is sure, that in case of reaching an agreement, Buffet will do everything possible signatures to maintain the highest degree of qualification. Anyway, the optimistic market reaction not me It seems to be very well founded.
Because assuming the proposal prosper and be accepted, the crisis will surely continue its way and damage to the US economy will continue, beyond a focus that would have increased the magnitude of the crisis have been disabled. Of this I am convinced beyond the Council of economic advisers in the Bush administration, has predicted a 2.7% growth for this year in the American economy. And since I’m talking about insurance companies, on Monday became the largest insurer in the world, American International Group (NYSE:AIG) has reported that its external auditors (PricewaterhouseCoopers), have questioned the internal controls of the company on the valuation of derivatives. The price of the stock fell by more than 11 percent when the news broke. My thought is that, in addition to what happened with the Societe, regulators will have to strengthen control over financial companies if they don’t want that markets will become more volatile yet.