Using Veritas to Construct the "Per…

29-04-2017 Hits:85837 BoomBustBlog Reggie Middleton

Using Veritas to Construct the "Perfect" Digital Investment Portfolio" & How to Value "Hard to Value" tokens, Pt 1

The golden grail of investing is to find that investable asset that provides the greatest reward with the least risk. Alas, despite how commonsensical that precept seems to be, many...

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The Veritas 2017 Token Offering Summary …

15-04-2017 Hits:80053 BoomBustBlog Reggie Middleton

The Veritas 2017 Token Offering Summary Available For Download and Sharing

The Veritas Offering Summary is now available for download, which packs all the information about Veritas in a single page. A step by step guide to purchasing Veritas can be downloaded here.

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What Happens When the Fund Fee Fight Hit…

10-04-2017 Hits:79912 BoomBustBlog Reggie Middleton

What Happens When the Fund Fee Fight Hits the Blockchain

A hedge fund recently made news by securitizing its LP units as Ethereum-based tokens and selling them as tradeable (thereby liquid) assets. This brings technology to the VC industry that...

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Veritaseum: The ICO That's Ushering in t…

07-04-2017 Hits:84394 BoomBustBlog Reggie Middleton

Veritaseum: The ICO That's Ushering in the Era of P2P Capital Markets

Veritaseum is in the process of building peer-to-peer capital markets that enable financial and value market participants to deal directly with each other on a counterparty risk-free basis in lieu...

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This Is Ground Zero for the 2017 Veritas…

03-04-2017 Hits:80932 BoomBustBlog Reggie Middleton

This Is Ground Zero for the 2017 Veritas Offering. Are You Ready to Get Your Key to the P2P Capital Markets?

This is the link to the Veritas Crowdsale landing page. Here is where you will be able to buy the Veritas ICO when it is launched in mid-April. Below, please...

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What is the Value Proposition For Verita…

01-04-2017 Hits:83173 BoomBustBlog Reggie Middleton

What is the Value Proposition For Veritas, Veritaseum's Software Token?

 A YouTube commenter asked a very good question that we will like to take some time to answer. The question was, verbatim: I've watched your video and gone through the slides. The exchange...

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This Real Estate Bubble, Like Some Relat…

28-03-2017 Hits:54186 BoomBustBlog Reggie Middleton

This Real Estate Bubble, Like Some Relationships, Is Complicated...

CNBC reports US home prices rise 5.9 percent to 31-month high in January according to S&P CoreLogic Case-Shiller. This puts the 20 city index close to an all time high, including...

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Bloomberg Chimes In With My Warnings As …

28-03-2017 Hits:82315 BoomBustBlog Reggie Middleton

Bloomberg Chimes In With My Warnings As Landlords Offer First Time Ever Concessions to Retail Renters

Over the last quarter I've been warning about the significant weakness in retailers and the retail real estate that most occupy (links supplied below). Now, Bloomberg reports: Manhattan Landlords Are Offering...

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Our Apple Analysis This Week - This Comp…

27-03-2017 Hits:82157 BoomBustBlog Reggie Middleton

Our Apple Analysis This Week - This Company Is Not What Most Think It IS

We will releasing our Apple forensic analysis and valuation this week for subscribers (click here to subscribe - lowest tier is the same as a Netflix subscription). As can be...

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The Country's First Newly Elected Lame D…

27-03-2017 Hits:82029 BoomBustBlog Reggie Middleton

The Country's First Newly Elected Lame Duck President Will Cause Massive Reversal Of Speculative Gains

Note: Subscribers should reference  the paywall material here for stocks that should give a good risk/reward scenario for bearish trades. The Trump administration's legislative outlook is effectively a political desert, with...

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Sears Finally Throws In The Towel Exactl…

22-03-2017 Hits:88072 BoomBustBlog Reggie Middleton

Sears Finally Throws In The Towel Exactly When I Predicted "has ‘substantial doubt’ about its future"

My prediction of Sears collapsing once interest rates started ticking upwards was absolutely on point.

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The Transformation of Television in Amer…

21-03-2017 Hits:85935 BoomBustBlog Reggie Middleton

The Transformation of Television in America and Worldwide

TV has changed more in the past 10 years than it has since it's inception nearly 100 years ago This change is profound, and the primary benefactors look and act...

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 The following is an interesting commentary forwarded by one of the boombustblog readers. I am enthused at the level of knowldege and common sense prevalent in this community. It really makes me happy that I started the blog.Wink

Letter from Buffet's camp. 

As you know, many constituencies in the financial markets have been increasingly focused on the emerging issues in the financial guaranty industry for several weeks now. In fact, we ourselves have had several meetings with the New York Insurance Department to explore whether there is something we can do under the current circumstances that would be helpful in addressing the growing concerns in the financial marketplace. Unfortunately, the structured finance "side" of the business, with its many moving pieces and interdependent variables, has proven to be beyond our ability to adequately analyze. Nonetheless, we are ready and willing to lend our reinsurance support to the municipal side of the house, and in fact had set out in a letter to the New York Superintendent of Insurance a concept that we believe would address the needs and concerns of main street America's municipalities. The Superintendent has no objection to our approaching you with this proposal. We would like to meet with you and your client, MBIA, to discuss whether MBIA would have any interest in the proposal .

The key elements of the proposal we described to the Superintendent were: (1) we would raise the capital level in our monoline insurer, Berkshire Hathaway Assurance Corporation (BHAC), to $5 billion; (2) we would assume by reinsurance the muni bond portfolio of several of the monoline companies for a premium of 150% of the existing unearned premium reserves of the companies (with respect to two of the leading companies this would result in a combined unearned premium reserve of $6 billion, plus $3 billion for a total premium of $9 billion which, with the increased capital contribution to BHAC would result in approximately $14 billion of assets available to meet the combined $600 billion or so of total principal value of municipal bonds insured by these two companies); (3) we would undertake not to reduce BHAC's assets by dividends, fees, etc., for a minimum period of ten years; and (4) we had furthermore proposed that, if the companies found a preferable solution during the first 30 days of our cover, they could have a no-questions-asked walk-away option in consideration of a break-up fee that would be paid to us.

The gist of our proposal to you is that we would reinsure MBIA's current municipal bond insurance portfolio in consideration of a premium payment to us of an amount equal to 150% of the existing unearned premium reserves. Like many potential reinsurance buyers, I recognize that your first reaction may be that this is an excessive premium, and I want to offer you upfront the thought processes that led me to conclude that this is in fact a fair proposal that achieves important objectives for both parties.

We priced this proposed reinsurance cover to reflect the significant opportunity cost from our perspective in providing this type of bulk reinsurance cover. In the current market environment, we are able to command premium levels double (or higher) your client's prior rates to insure the risks that in addition have the benefit of your client's AAA insurance cover. Given our conservative use of capital (for example, the capital ratios in our monoline insurer would be higher than other insurers and would not be subject to reduction by dividends, fees, etc. for a minimum of ten years under the concept we presented to the Department), by offering this cover we forgo these direct opportunities to wrap already wrapped bonds. Despite this, there is an obvious appeal to a bulk transaction like this given the low overhead costs which would be involved.

Taking all these factors into account, we came down in favor of making the proposal and are prepared to pursue it with you directly. It is efficient as both a bulk transaction and a transaction that we believe will help stabilize the currently unstable marketplace conditions for the municipal business. In that sense, this approach also has the appeal of serving the greater public good, not an unimportant consideration for us, both as a matter of principle and as a company with a vested interest in national economic conditions.

From your perspective, I would respectfully suggest that this proposal would allow MBIA to release substantial capital from the municipal bond side of the house that can be deployed to support other obligations. I would submit that our proposal at the pricing levels we require is actually a cheap way for MBIA to raise capital as compared to other alternatives and is therefore of great benefit to MBIA's owners and their municipal bond policyholders.

Should this proposal prove to be of interest to you, and I sincerely hope that it is, we would ask for the courtesy of a reply as soon as possible. We would be prepared to complete this transaction within the next five days.

 

Sincerely

Ajit Jain,

President

 

Buffet's Plan vs. Bifurcation Plan 

Berkshire Hathaway Assurance Corporation (BHAC)     MBI + ABK If/After they Accept Buffett Proposal
                 
                 
                 
  Assets Liabilities       Assets Liabilities  
                 
    $6,000 Unearned Premium Reserve   X-$6,000 Unearned Premium Reserve
                 
                 
                 
    Capital         Capital  
                 
    $3,000 Fee       ($3,000) Fee
    $5,000 New Capital          
    $8,000 Total Capital     Y-$3,000 Total Capital
                 
  $14,000 $14,000       X+Y-$9,000 X+Y-$9,000  
                 
                 
  BHAC assumes muni liabilities          
  Total premium $9,000            
                 
                 
      Ambac's Attempt to mimic Buffett proposal but keep residual value of muni business
  New ABK Muni Entity       Bad ABK    
                 
                 
                 
  Assets Liabilities       Assets Liabilities  
                 
    $3,000 Unearned Premium Reserve   Prior-$3,000 Unearned Premium Reserve
                 
                 
                 
    Capital         Capital  
                 
                 
    $3,000 New Capital          
              Unchanged Total Capital
                 
  $6,000 $6,000       Prior-$3,000 Prior-$3,000  
                 
 

Observations

New ABK assumes unearned premium and associated assets.New ABK raises $3,000 in new (extremely expensive and highly dilutive) capital.           1   Banks pay $2,000 for equity in Bad ABK to Holding Company   2   ABK Holding sets up New ABK with Banks $2,000 as capital   3   New ABK Muni raises $1,000 from surplus notes.   4   Bad ABK cedes $3,000 unearned premium to new ABK.               
  •         Bad ABK has same capital, fewer liabilities.
  •         New ABK is AAA       
  •         Only transactions are new capital to new muni entity and reinsuring the unearned premium reserve.
  •         The reinsurance will probably be handled as a novation.  If not, a cut through clause would be used.
  •         Reinsurance will be approved by Dinallo.
  •         Ambac has their old business back. The problem is, as was noted in the Buffet letter, Buffet will simply come in and possible rewrap the bonds and take new business anyway. Who would you rather sell your risk to? Buffet at twice the capitalization and 1/2 the risk tolerance or Ambac's management?
  •         The rating of the 'bad Ambac' no longer matters to Ambac, but only to their insureds - the banks.
  •        
  •         Couldn't abk be sued by claimants in the old/bad business? A blessing by the NYS Dept. of Ins.  May limit liability.
  •         Litigation by policy holders of current Ambec who remain in 'bad ambac' is unlikely since no capital is removed from the company.       

       

Is the proposed reinsurance transaction reasonable?
  •         Yes because the unearned premium reserve is a liability that is computed policy by policy from the muni policies.
       
  •         What's in it for the banks?
  •         The capital ratios on the old/bad business improve.  This would buy them more time before a downgrade.
  •         Note that the banks can rebuild their balance sheets because their basic business is profitable.  In fact, it is likely that
  •         there will be further writedowns, so the banks will keep their capital ratios from declining faster then their earnings.      

       

What's in it for the Rating Agencies?
  •         Insured munis keep their AAA.  They don't have to deal with huge amounts of work downgrading the bonds, and then rerating
  •         every entity that holds them.  They can then downgrade the old/bad business gradually.  The rating agencies don't want to blow
  •         up the financial system by a sudden cascade of downgrades.  If they can do it over a longer time period, then it won't be their
  •         fault. No matter which way you look at it it is their fault. If they would have rated these securities, pools and companies judiciously to begin with, we wouldn't be in this mess.

      

What's the hangup?
  •         All the details about who gets what.  The banks will want more and the bond insurers will want to give less.
  •         The rating agencies also have to be on board concerning the rating for the new entity.  

       

Will it work?
  •         Yes and no.  It will work out great for the muni bond holders insured by these guys.
  •         The new muni entity will have a hard time competing with Buffett.  They can never regain confidence from the market.
  •         ABK will no longer care about the rating of the old piece, since it won't be writing new business.
  •         The old business will have an investment grade rating for at least a year. Who knows, since it appears fundamentals are not ruling the day.
  Questions, comments and thoughtful criticisms are welcome.