No wonder the US markets were flat yesterday despite another half point cut by Bernanke. The folks who helped prop up the subprime loans are now being scorched themselves. Reagan's trickle down may have never worked but in this case, it's working. The big question is where is this going and who will be next? Even with countless financial wizards and number crunchers, Wall Street has no idea. That's why they make the big bucks and dictate policy, including the Fed.
Like other bond insurers, FGIC initially focused on municipal bond deals but ventured into riskier debt securities to boost returns. Massive defaults on U.S. subprime mortgages battered the credit quality of these products, increasing the capital bond insurers needed for an ``AAA'' rating.
Losing a Triple A rating could be devastating for the bond insurers, preventing them from drumming up new clients -- and possibly forcing them out of business.
Ambac has already received a downgrade from rating agency Fitch, but has so far been spared by Standard & Poor's and Moody's. MBIA hasn't been downgraded.
