Ambac, CDS and Geithner: It’s AIG all over again

Indeed, fairness dictates that all of the financial claims against [Ambac Assurance Corp] be segregated. Yet in an affidavit filed with the Court, Dilweg argues that holders of financial guarantees such as Dunkin Doughnuts and Herz will be inconvenienced if the CDS contracts are not closed-out. But Dilweg’s sworn statement seems inconsistent given that he is advantaging one class of non-insurance financial claims for another. Why are the RMBS claims inferior to the convenience of Herz and Dunkin Doughnuts? Why are CDS senior to any insurance wrap by AAC and in particular the coverage of RMBS? The determinative factor for Dilweg seems to be the Geithner imperative of first paying the bank counterparties in the CDS and effectively repudiating similar guarantees on RMBS, which were destined to eat all of AFG’s capital had the State of Wisconsin not intervened. That economic fact of the losses on the RMBS, at the end of the day, was probably the driver behind Mr. Dilweg’s sworn statements to the Court.� And how conveninent that the State of Wisconsin decides to segregate the liabilities most likely to become current.