Financial honchos weigh in on muni bonds

Financial regulators flooded Congressman Paul E. Kanjorski, D-Pa., with their responses and assessments of the ongoing municipal bond insurer debacle. Mr. Kanjorski, chairman of the House Financial Services Capital Markets, Insurance and Government Sponsored Enterprises subcommittee released the regulators’ letters today. They discussed the problems with the bond insurance marketplace and outlined the implications for the rest of the economy. The missives were in response to a request for input from Mr. Kanjorski. Respondents included Christopher Cox, chairman of the Securities and Exchange Commission; Eric Dinallo, superintendent of New York’s insurance department; and Sandy Praeger, Kansas insurance commissioner and president of the National Association of the Insurance Commissioners. The Federal Reserve and the Comptroller of the Currency also wrote in. In his letter, Mr. Dinallo detailed a three-part plan from the New York department to help out the bond insurers. Among the steps, Mr. Dinallo wrote of his aiding Berkshire Hathaway to open and license a bond insurer in New York. He also noted that his office was looking to work with insurers, advisers and rating agencies to address the muni bond marketplace’s problems. A letter from Fed chairman Ben Bernanke speculated that investors, including money market funds, could unload their bonds, sending them back to the banks that provided them. In turn, the banks could end up bringing a large amount of these muni securities onto their books. The Fed is also monitoring the potential effect of the downgrades, Mr. Bernanke added. Mr. Kanjorski said he would determine the most efficient action to take. He announced that the Capital Markets subcommittee would be holding a hearing on Thursday, Feb. 14.