No. of Recommendations: 2
<If a muni is insured, how can it still get a low rating? >

The insurers are dramatically undercapitalized relative to their muni books and also took on enormous losing derivatives risks that were outside their core muni insurance businesses.

In my opinion, the insurers do not deserve even the lowered ratings. They are in danger of defaulting if "higher than expected" numbers of insured muni bonds default.

I have been horrified by the over-leverage of the muni bond insurers since I became aware of them, in about 2005, long before the crisis.

Bottom line: if the insurer fails, the insurance fails.

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