by Tanta on 2/12/2008 09:32:00 AM

Buffett offers to separate the sheep from the goats. The goats are not happy:

Feb. 12 (Bloomberg) -- Billionaire investor Warren Buffett said he offered to assume responsibility for $800 billion of municipal bonds guaranteed by MBIA Inc., Ambac Financial Group Inc. and FGIC Corp.

Buffett's Berkshire Hathaway Inc. would put up $5 billion as part of the plan that would exclude subprime-related obligations. One company has already rebuffed the proposal and the two others haven't responded, Buffett told CNBC television.

Buffett is attempting to take advantage of the distress among bond insurers by picking off the profitable municipal guaranty business and leaving MBIA, Ambac and FGIC with debt that has caused more than $5 billion in losses. The three companies are struggling to maintain their AAA ratings after writedowns on the value of mortgage guarantees.

``If you gave up your entire municipal business, that's the book of business where the value in the companies is right now,'' said CreditSights Inc. analyst Robert Haines. ``You'd essentially be ceding that whole book to Buffett and what you'd be left with would be the book of business where all the troubles are.'' . . . .

If the municipal debt was reinsured by AAA rated Omaha, Nebraska-based Berkshire, the municipalities would also retain the top rating, Buffett said.

``The insurance in the market is not doing bondholders any good and is in some cases penalizing bond investors,'' Buffett said. ``Our proposal puts the municipals at the front of the line.''

The downgrade of a large bond insurer would force some insurers to sell any municipal debt that didn't have an underlying AAA rating.

``It would solve it in one stroke of a pen,'' Buffett said of the plan.

*Everything But Subprime