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Bond Insurers Should be Part of Bailout: Dinallo

New York state Insurance Commissioner Eric Dinallo is pushing the Treasury Department to include bond insurers in the government's bailout of the financial system, CNBC has learned.

Dinallo wants the insurers included in the $700 billion capital purchase program, often referred to as the TARP, in the wake of the industry's troubles that have led the two principal providers, Ambac and MBIA , to lose their coveted triple-A status from ratings agencies.

By providing capital to the two insurers they can regain their rating status, leading to depressed insurance bonds on the books of banks to regain their top valuation as well.

Consequently, that will raise the value of the bonds and require less capital needed for the banks holding them to regain their financial footing. Municipalities and pension funds holding the bonds also will benefit, Dinallo believes. (See the accompanying video for more.)

The capital purchase plan has been infusing banks and financial firms with capital and holding auctions to buy toxic securities from the banks. The program also includes a provision in which insurance companies insure those bad securities on the banks' books.

Dinallo has met with members of Congress and the Treasury Department to discuss the plan. Neither Treasury officials nor Dinallo would comment.


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