Bail-out of bond insurers is not planned

WASHINGTON, Feb. 14 (UPI) -- A source of short-term funding for municipalities is failing but the chance of a government bailout is unlikely, New York's insurance superintendent said.

Superintendent Eric Dinallo told the U.S. House of Representatives Financial Services Subcommittee that finding help for bond insurers, such as Ambac Financial Group and MBIA, so they could keep their triple-A ranking would be "extraordinarily difficult," the Financial Times reported Thursday.

"Absent a government bailout, which is not planned, it is up to each of these insurers and their counter-parties to come to an agreement," Dinallo said.

His testimony came in the wake of a collapsed $330 billion short-term funding source as investors have stopped buying securities at municipal auctions.

UBS AG and other financial companies, including Goldman Sachs and Lehman Brothers, have backed away from the auctions due to a lack of confidence, the report said.

"A significant, albeit likely lived liquidity crunch is again emanating out of the credit markets," said Jeffrey Rosenberg, a credit strategist at Banc of America Securities said.

But, MBIA Chief Financial Officer Charles Chaplin told the committee, in separate testimony, that a bailout in order to prop up "highly credit-worthy companies who are at risk of losing the very highest ratings available is misplaced."