Banks are working to rescue bond insurers now, much as they did with Long-Term Capital Management when it collapsed in 1998, but the situation in this case is fundamentally different, corporate gadfly Bill Ackman said in a letter to regulators.

Hedge fund Long-Term Capital controlled some $100 billion of assets in 1998, but collapsed in the wake of the Russian debt crisis, which triggered a series of margin calls for the firm. A consortium of banks, nudged by the Federal Reserve Bank of New York, infused the fund with capital and liquidated its positions in an orderly fashion.

The problem with LTCM was one of liquidity, Ackman wrote. If the fund had been able to continue financing its positions, they would have eventually proven sound.

Ackman, who has been betting against the bond insurers’ shares for years, argues that they’re different from LTCM because they chose their positions poorly and will likely suffer from insolvency.

His proof? The lack of investor interest in rescuing the bond insurers. Warburg Pincus has taken a significant stake in bond insurer MBIA, but other private equity firms are unlikely to follow in their footsteps, according to a recent report in the Financial Times.

If the bond insurers’ positions were likely to perform well if only they could be held to maturity, private equity investors would presumably be lining up to take positions, Ackman said.

“These private market assessments indicate that this is not simply a case of illiquidity or a lack of sufficient opportunistic capital in the market,” Ackman wrote.

Ackman’s letter may be downloaded here.

(Photo of Bill Ackman courtesy of CFA Institute)