MBIA, the issuer of massive amounts of credit default derivatives, has had their bonds downgraded two notches by Fitch.

This is the most significant event to occur since this entire mess started.

It is reasonable now to assume that all the bond issues guaranteed by MBIA will feel the impact of that downgrade.

I was certain the civil liability the rating companies would face by keeping the credit default derivatives at an AAA rating was high enough to break them.

This is a very significant development that opens the door to a new $45 trillion dollar derivative problem.

MBIA Loses AAA Insurer Rating From Fitch Over Capital (Update1)
By Emma Moody

April 4 (Bloomberg) -- Fitch Ratings cut MBIA Inc.'s insurance rating to AA from AAA, saying the bond insurer no longer has enough capital to warrant the top ranking.

MBIA, the world's largest bond insurer, would need as much as $3.8 billion more in capital to deserve an AAA, New York- based Fitch said today in a report. The outlook is negative, Fitch said.

Fitch issued the new, lower rating even though Armonk, New York-based MBIA asked the ratings company last month to stop assessing its credit worthiness. The two companies disagree over how much capital MBIA needs to absorb losses on the bonds it insures.

''It will be difficult for MBIA to stabilize its credit trend until the company can more effectively limit the downside risk'' from collateralized debt obligations, Fitch said in the report.