In spite of this, municipal bond insurers such as Ambac Financial (ABK) and MBIA (MBI) are somehow still solvent.
The two biggest companies in the bond insurance business are MBIA (30, MBI) and Ambac Financial Group (22, ABK) .
That interpretation didn't sit well with the bank or with Ambac Financial Group, which had written insurance on BNP Paribas' notes.
Wilbur L. Ross Jr. is considering a bid for Ambac Financial Group.
Assured Guaranty, and the other big monolines like MBIA and Ambac Financial Group, use credit default swaps and other credit derivatives to insure bonds.
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Of course Ackman is also short in his holdings of MBIA, Ambac Financial and other bond insurers, meaning he makes profits when the shares of the companies decline.
The two biggest companies in the bond insurance business are MBIA (30, MBI) and Ambac Financial Group (nyse: ABK - news - people ) (22, ABK) .
Bond insurers such as MBIA and Ambac Financial Group built up their businesses by insuring low-risk municipal bonds, but during the nation's housing boom, these and other bond insurers invested heavily in subprime and other mortgage-backed investments, and now they're paying the price.
MBIA, and its peers like Ambac Financial Group, traditionally operated in the somewhat routine business of insuring municipal bonds but expanded into the mortgage market as the housing boom swelled and began writing insurance on mortgage-related instruments that turned sour en masse when the bubble burst.
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That "hands across Wall Street" effort seems unlikely now, though banks are meeting with individual bond insurers, including Ambac and Financial Guaranty (FGIC), two of the companies that are the targets of the Buffett offer.
On Friday Ambac saw its crucial financial strength rating cut to "AA" from "AAA" and the bond insurer's plight is likely to have far-flung effects.
Standard and Poor's affirmed the financial strength of MBIA and Ambac shortly before the market closed on Monday.
Late Wednesday, Moody's Investors Service said it might downgrade Ambac's all-important triple-A financial-strength credit rating after the company forecast significantly higher-than-expected losses from insuring credit derivatives, many of them tied to subprime mortgages.
Before the market blew up, state and local governments could reassure bondholders that if they ran into financial trouble, their bonds would be honored by specialty insurers, like MBIA , Ambac and Federal Guarantee Insurance Company (FGIC).
Standard and Poor's affirmed the financial strength of MBIA (nyse: MBE - news - people ) and Ambac shortly before the market closed on Monday.
Fitch Ratings cut FGIC's financial strength rating Wednesday to double-A from triple-A, and it did the same to Ambac earlier this month.
Late Wednesday, Moody's Investors Service said it might downgrade Ambac's (nyse: ABK - news - people ) all-important triple-A financial-strength credit rating after the company forecast significantly higher-than-expected losses from insuring credit derivatives, many of them tied to subprime mortgages.
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