Correspondingly, leading bond insurers Ambac and MBIA have taken a beating, a situation Dinallo, speaking on CNBC, said needs to be addressed. He estimated $10 billion to $20 billion of the total $700 billion bailout should be dedicated to bond insurers.
He said federal money to help backstop the two companies should they sustain further pressure from defaults is one of the "cheapest, quick ways to help unlock the municipal bond market."
"We (were) looking for banks to step up and put some kind of backstop in place," Dinallo said. "We also asked Congress for some kind of backstop." (Clarification)
Dinallo's comments come as Lehman Brothers is unwinding its CDS load, an event not expected to be as damaging to the credit markets as initially feared. There initially were fears that the cost to companies holding Lehman debt could reach as high as $400 billion, but the actual payouts are expected to be much less.
Clarification: The parenthetical word has been added to clarify the time frame.