Coming Week: Ratings Scrooges

Nothing puts credit ratings agencies in a giving mood like Christmas.

Too bad they're handing out lumps of coal in the form of downgrades to financial guarantors and structured products tied to mortgage-backed securities. As so much bad news threatens more pain in the credit markets, investors are counting on rescuers to swoop in.

Moody's Investors Service, Fitch Ratings and Standard & Poor's were on a pre-Christmas warnings and downgrade spree in recent weeks, highlighting concerns about capital shortfalls for bond insurers, including the market's two largest, MBIA(MBI - Cramer's Take - Stockpickr) and Ambac Financial Group(ABK - Cramer's Take - Stockpickr).

Together, MBIA and Ambac insure $1.2 trillion of bonds, and they need capital to keep afloat next year.

The guarantors rely on pristine credit ratings and ample stores of capital to guarantee that investors receive payments on their securities. A downgrade could force some fixed-income investors into a selling spree, because parameters of their investment funds require that their holdings be insured by a guarantor with a triple-A rating.

James Bianco of Bianco Research notes that the municipal bond market has been slow to react to warnings about the guarantors. The market has also failed to take note that Fitch put 173,022 bond issues on credit watch for a downgrade, mostly municipal bonds. He says this could mean "another big leg down" for the credit markets.