In written testimony for a subcommittee of the House Committee on
Financial Services, MBIA said that short sellers like Mr. Ackman,
founder of the hedge fund Pershing Square Capital Management, have worked hard to undermine market confidence in the bond insurers.
MBIA said lawmakers should help restore confidence in the bond
insurers, because their failure could have far-reaching effects on the
U.S. and global economies.
In testimony that specifically targets Mr. Ackman, MBIA wrote that
the House Subcommittee on Capital Markets should work with the
Securities and Exchange Commission to curtail “the unscrupulous and
dangerous market manipulation activities of short sellers,” trying to
undermine market confidence in MBIA to drive the company’s share price
to nearly zero.
It said the practice and dissemination of “half-truths and
misleading information” should be “investigated and curtailed,” and
called on Congress to work on the matter with the Securities and
Exchange Commission.
MBIA also included as an appendix a timeline of actions by Mr. Ackman, and to a lesser extent by other short sellers.
Mr. Ackman, who is also expected to testify before the committee
Thursday, has persisted in challenging MBIA’s AAA credit rating for
more than five years, saying MBIA hasn’t been forthcoming about backing
risky financial instruments such as those based on loans to the least
creditworthy homebuyers.
And his efforts have not gone unrewarded. Mr. Ackman’s Pershing
Square delivered a return of 22 percent to its investors in 2007,
thanks in part to its bets that the stocks and bonds of MBIA and Ambac
would fall, Bloomberg News reported.
The war of the words comes as the three major U.S. credit rating
agencies are deciding whether MBIA has enough funds to keep its AAA
rating.
Investors fear that a chain reaction of losses might rock the
financial industry if even one big bond insurer were to lose its top
credit rating. The concern is that MBIA and Ambac,
which have guaranteed more than $1 trillion in municipal, corporate and
mortgage debt, will not have the capital they will need to pay out
claims as defaults rise.
Many big banks and investors that hold mortgage securities
guaranteed by the companies would have to write down the value of those
investments if the insurers lose their top ratings. Those losses could
total tens of billions of dollars for some banks.
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