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One of the concerns appears to be that even though there has been some additional capital invested in MBIA, if Moody's downgrades this bond insurer of municipal bonds nationwide, investors in bonds rated and insured by MBIA might be forced to sell those bonds since they might have stipulated in their investment portfolio that all their investments are AAA rated and insured. The sell off of these bonds to a weak market would be untimely to say the least.
It is not clear to me whether all cities rely of MBIA to insure municipal bonds and what the effect of all this is. It does seem that cities would be unable to bring to market additional debt offerings which certainly would wreak havoc on some long term capital expenditure plans all across the country.
Stay tuned.
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