Let the Lawsuits Begin

So FGIC requests to be broken in two.  Personally, I expect that it stemmed from giving into strong-arming from the New York Department of Insurance and perhaps the Governor as well, but if I were FGIC, I would want to do this.  Who wouldn’t want the option of splitting his business in two during a crisis, putting the good business into subsidiary A, which will stay solvent (and protect some of your net worth) and putting the bad business into subsidiary B, which will go insolvent, and pay little to creditors?

In many other situations this would be called fraudulent conveyance, but when you have a state government behind you, I guess it gets called public policy.  The NY Insurance Department tries to sidestep a big insolvency by creating favored classes of insureds.

Those with concentrated interested in non-municipal guarantees should band together to protect their rights, and sue FGIC and NY State (seeking punitive damages) to block the breakup.  The question is, who will be willing to bear the political heat that will arise from this, and oppose an illegal “taking?”