Spitzer, Fund Manager Ackman Due At Bond Insurer Hearing

WASHINGTON--New York Gov. Eliot Spitzer will be among a broad-based lineup of witnesses appearing tomorrow at a House subcommittee hearing looking into oversight of the troubled bond insurance industry.

Other witnesses scheduled to testify at the hearing before the Capital Markets Subcommittee will include New York State Insurance Commissioner Eric Dinallo, who will be with a group on a panel that includes staff officials of the Securities and Exchange Commission and the Federal Reserve Board.

Mr. Dinallo has been spearheading talks with banks and other stakeholders involved in the mortgage market in an effort to secure supports for ailing bond carriers in his jurisdiction.

Also due to appear is Bill Ackman, founder and manager of hedge fund Pershing Square Capital Management, who has been betting against the stocks of bond insurers and is a strong critic of their decision to venture into the business of insuring credit swaps on securities backed by subprime mortgages.

MarketWatch today reported that according to advance testimony from Mr. Ackman he will criticize Mr. Dinallo's efforts to seek a bailout for bond insurers from banks and brokerage firms that are big counterparties to the bond insurers.

"A more efficient solution would involve the banks taking the extra write-downs and being more transparent about their exposures. These firms could then raise more capital or be bailed out themselves, which would be a better option than the indirect method of propping up ailing bond insurers," Mr. Ackman was quoted as saying.

He suggested in an interview with BestWire that Mr. Dinallo might step in and force the nation's top bond insurers to take an offer from billionaire investor Warren Buffett, who has said for a high premium he would reinsure their solid municipal bond business, while avoiding their riskier business such as collateralized debt obligations.

Officials of two insurers, Ambac and MBIA, will also testify at the hearing, as will a representative of Fitch Ratings, which has recently announced a change in the system it uses to rate bond insurers, as well as plans to downgrade several of the bond insurers from their "triple-A" ratings.

Reuters said MBIA Inc., in an advance copy of its written testimony, urges lawmakers and insurance regulators to halt "the unscrupulous and dangerous market manipulation activities of short sellers."

MBIA reportedly will demand that the practice and dissemination of "half-truths and misleading information" should be "investigated and curtailed."

In particular, the testimony specifically mentions Mr. Ackman.

Bond insurers, because of their involvement in the risky derivative market, have been placed on financial watch by rating agencies, and in one case downgraded.