MAYBE NOT A WAY OUT

Some of the monolines are thinking of splitting into two parts, one for the safe municipal bond business, the other for the Big ShitPile (© Atrios) business. This may not be fiscally prudent because the buyers of insurance may balk:

Buyers and sellers of protection did so on the understanding that the entire MBIA insurance business stood behind the debt, Yelvington said. If that changes, the company could open itself up to lawsuits.

``If you've got protection on a CDO, you effectively have benefited all this time from the strength of that municipal bond business,'' Yelvington at CreditSights said. ``Now, that's effectively being taken from you.''

At the same time, the rot seems to be spreading to some other Masters of the Universe:

KKR Financial Delays Repayments, Starts Negotiations (Update3)

By Patricia Kuo and Edward Evans

Feb. 20 (Bloomberg) -- KKR Financial Holdings LLC, Kohlberg Kravis Roberts & Co.'s $18 billion publicly traded credit fund, delayed repaying some of its asset-backed commercial paper and started restructuring talks with its creditors.

The fund agreed with holders of its residential mortgage- backed securities to defer repayment a second time, KKR said in a regulatory filing yesterday. About half the debt will be due by March 3 instead of Feb. 15, with the rest owed on March 25.

Kohlberg Kravis Roberts, the New York-based investment firm run by Henry Kravis and George Roberts, raised $800 million in KKR Financial's initial public offering in June 2005, selling the shares for $24 apiece. The fund raised money by selling commercial paper to invest in mortgages. It sold almost half of its mortgage loans in August as prices on bonds linked to U.S. home loans started to drop.