It’s like something out of King Lear: “The worst is not so long as we can say ‘This is the worst’.” Every time the bond insurers get whacked by the market, there is a temptation to think the bloodbath is nearing its end. Before, that is, they get taken down again, usually after yet another pronouncement from the ratings agencies. Yesterday’s news saw Ambac, one of the bigger so-called monolines, scrap capital-raising plans. The insurer was downgraded by ratings ageny Fitch from AAA to AA. This is quickly turning into a desperate situation. As Jamie Dimon, JPMorgan Chase’s chief executive, and someone wont to call a spade a spade, remarked earlier this week: “If one of these entities doesn’t make it... the secondary effect... I think could be pretty terrible.” Indeed.

What, for instance, happens to all the outstanding debt the monolines have insured – totalling over $1,000bn? The majority of it is not subprime but humdrum bonds issued by municipalities, for instance, to fund schools and hospitals and roads. There is much at stake, but so far policymakers and Wall Street bankers – who have their own interests in ensuring the monolines do not go under – have not acted.

Assuming you can figure out how bad the monoline losses could be – and admittedly that looks like a mug’s game right now – some co-ordinated rescue might be the right thing to do for systemic reasons. Last month, Standard & Poor’s estimated after-tax losses on CDOs for Ambac and MBIA together could amount to roughly $5bn. Just to be clear, those are losses under draconian stress scenarios. Even if the losses now look like they could be higher, it could still make economic sense for other institutions to commit funding to cover that eventuality, in order to safeguard the value on more than $1,000bn. Anyone who manages to bang heads together and come up with a workable rescue plan will be the toast of Wall Street.