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Trouble With A Capital “AAA”

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MBIA (MBI) shares fell the most in 20 years Thursday on $8.1 billion worth of risky loan exposure. What's the trade as bond insurers stand to lose their AAA-rating?

This could cause an enormous ripple across the financials, says Karen Finerman, especially if one of the bond insurers were to default. (She doesn't think that's going to happen, by the way.)

Every investment bank has a $90 billion portfolio that they’re not really marking down. If the insurer behind that paper fails that’s a disaster.




Dylan Ratigan adds that on November 1st the Ambac’s CEO (another bond insurer) said, "There clearly is a disconnect between the value of our portfoilo, which is in very good shape, versus what has happened in the stock price in the last couple of months..."

He was right, adds Finerman, the stock was way too high. But Ambac (ABK) is probably in better shape than MBIA. I feel MBIA misled the Street because they have far more mortgage exposure than anyone knew. And they will probably need additional capital, she adds.

Jeff Macke agrees and adds the question is whether they can forestall this credit disaster long enough to work it through the system.

> Read more "MBIA Exposed to $30.6 Billion in Debt Securities"

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Trader disclosure: On Dec. 20, 2007, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (YHOO), (INTC), (EMC), (DIS); Pete Najarian Owns (C), (MS), (MSFT), (RHT), (TGT); Pete Najarian Owns (YHOO) Options, (EMC) Options, (GOOG) Options, (RIMM) Options; Pete Najarian Owns Shares Of NetSuite; Finerman's Firm Owns (WMT), (YHOO), (GS), (BEAS), (PLCE),(VCLK); Finerman's Firm Is Short (SPY), (IYR), (IJR), (MDY), (IWM); Finerman's Firm Owns S&P Puts; Finerman's Firm Owns Russell 2000 Puts; Finerman's Firm Is Short (LEH) And Owns (LEH) Puts; Finerman's Firm Is Short (MBI) And Owns (MBI) Puts