Financier Warren Buffet has made a lot of money being right. So when Mr. Buffet’s companies issued Credit Default Swaps, which are insurance against default on state and local debt everyone took this as a good thing. But Mr. Buffet has just decided to end his exposure, and has closed out over $8 billion worth of these CDS’s, meaning he is no longer willing to provide insurance for municipal bonds.
company recently terminated credit-default swaps insuring $8.25 billion of
municipal debt. The termination, disclosed in a quarterly filing with
regulators this month, ended five years early a bullish bet that Mr. Buffett
made before the financial crisis that more than a dozen U.S. states would keep
paying their bills on time, according to a person familiar with the
transaction. Omaha, Neb.
The insurance-like contracts, which required
Berkshire to pay in
the event of bond defaults, were originally purchased by Lehman Brothers
Holdings Inc. in 2007, more than a year before the Wall Street firm filed for
bankruptcy, the person said.
Some investors said the decision to end the bet indicates that one of the world's savviest investors has doubts about the state of municipal finances. If so, the move could be a warning to investors who have purchased such debt. In canceling the contracts early, Mr. Buffett probably "doesn't want this exposure anymore and is getting out while he can," said Jeff Matthews, a hedge-fund manager who personally owns
A major series of defaults in the municipal sector would create a
Greece like problem for the U. S,
and while that is not likely, it is clear that one of the most savvy investors
ever thinks the risks have risen.
Great, just another thing to be worried about.