Activist Renews MBIA Fight

Indeed, shaky markets and a gloomy outlook for the housing sector have turned Ackman into a modern-day Cassandra on the monoline insurance business.

Values on many of the securities that they insure, including esoteric collateralized debt obligations, or CDOs, have plummeted, placing intense pressure on these firms.

Monoline insurers essentially provide added protection to investors against losses in securities from municipal bonds to structured asset-backed securities to CDOs. Most companies are under pressure to bolster their capital reserves to pay out possible defaults by ratings agencies Standard and Poor's, Moody's Investors Service and Fitch Ratings, which are threatening downgrades.

The insurance monolines offer on these debt securities allow them to receive a more favorable credit rating than they would otherwise, making the investments more palatable for institutional investors, including pensions and insurance companies, which often cannot purchase debt below triple-B.

The implications for a big bust of monoline insurance firms would be a major blow at an already testy time in the markets, because their insurance wraps guarantee trillions in debt, including CDOs held by banks and brokerages.

Beyond Ambac and MBIA, which have been the cause célèbre of Ackman for half a decade, other firms under stress include privately held Financial Guaranty Insurance and French-owned CIFG.

CIFG has already received a $1.5 billion bailout from Groupe Banque Populaire and Groupe Caisse d'Epargne, which agreed to take control of the monoline from their Natixis banking subsidiary.