Tuesday, November 9, 2010

Ambac Bankruptcy Another Blow to Wall Street

Ambac, previously the second largest bond insurer, filed for bankruptcy late yesterday. Although there is a chance the company could emerge from bankruptcy, its bankrupt status is another indication that the old Wall Street will not be coming back.

Ambac’s willingness to insure mortgage-backed securities made it easier for Wall Street financial companies to pass those off as investments. But skeptics said all along that Ambac didn’t have the reserves to pay potential claims, and in the end, the skeptics were right. Investment funds that bought insurance from Ambac have already sued to keep the company from liquidating some of its assets, and those are issues that now will have to be addressed in bankruptcy court.

It is a certainty, though, that Ambac’s customers will take losses because of its financial collapse, and the size and distribution of those losses may not be determined for several years.