The genius investor behind Berkshire Hathaway (BRK.A, news, msgs) told CNBC this morning that his company last week offered to help three troubled bond insurers -- Ambac Financial (ABK, news, msgs), MBIA (MBI, news, msgs) and Financial Guaranty Insurance, which is partly owned by Blackstone Group (BX, news, msgs) -- by reinsuring $800 billion worth of municipal bonds the companies cover in exchange for a payment of 1.5 times the premium they receive.
Stocks rallied by midday, as worries about the credit markets were calmed somewhat by Buffett's offer. At 1 p.m. ET, the Dow Jones Industrial Average was up 193 points, or 1.6%, to 12,433. The Nasdaq Composite Index had added 22 points, or 0.9%, to 2,342, and the Standard & Poor's 500 Index was up 18 points, or 1.3%, at 1,357.
"It's another potential solution to some of the credit problems," Security Global Investors money manager Mark Bronzo said to Bloomberg News. "That's why the markets are responding well."
Buffett said that one company has turned down his offer and that he has not yet heard from the other two.
The offer was only extended to municipal bonds, which are issued by cities, states or other local governments, as well as any governmental agencies.
With the recent turmoil in the mortgage and credit markets, the ratings of many bonds that these companies insure have been downgraded, putting the companies' AAA ratings at risk. And if the companies lose their AAA ratings, there are a number of institutions that will have to sell the bonds, increasing supply and causing a market disruption, Buffett said.
Shares of Ambac added 2 cents to $10.50 this morning; MBIA shares fell 58 cents, or 4.3%, to $13.00.
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