When it comes to the monolines, I’ve had quite a lot of sympathy for MBIA in general and for its CEO Jay Brown in particular. But if he carries on like this, that sympathy won’t last long:
MBIA Inc. said it may sue Bill Ackman, striking back against the hedge fund manager who waged a six-year campaign against the bond insurer and said this year that the company may be insolvent.
MBIA is "assessing all our options, including litigation" against Ackman’s Pershing Square Capital Management LP, Chief Executive Officer Jay Brown said on a conference call today.
Litigation is a very, very, very bad idea. The immediate upside is negligible: what could MBIA hope to achieve from bringing such a case? And the long-term upside isn’t much larger: while a handful of people might have second thoughts about publicizing their analysis of MBIA, investors more generally will simply assume that MBIA is trying to prevent them from reading negative analysis, and will mark down MBIA’s securities accordingly.
Ackman is tenacious, but he’s no criminal, and he doesn’t go around threatening the companies he’s shorting. Similarly, neither should they threaten him. Open, transparent debate is good; anything which serves to quash that debate is bad. The irony here is that Jay Brown is extremely good in such debates: he’s clear and easy to understand and quite convincing, most of the time. He should engage in them more often, rather than resort to thuggish tactics like this.