Monolines and Bank Write-downs

"The most important question regarding yesterday's downgrade of Ambac and MBIA is obviously not about munis but about ABS and CDOs. As readers undoubtedly know by now, banks and brokerages routinely purchased monoline insurance on ABS and CDO transactions. In CDO land, the trade was usually done on the senior-most tranche of the CDO, with the monoline writing a credit-default swap on the trade."