November 7, 2007 (LPAC)--Fitch Ratings threatened to cut the AAA ratings of the world's largest bond insurers after a review of their $2.5 trillion exposure to the global market in collateralized debt obligations (CDOs, parcels of repackaged debt securities). This could strike at the heart of the financial system, warned Toby Nangle, a fixed-income fund manager for Baring Asset Management, the London Times reported. "Banks have transferred huge volumes of credit risk from their books to the insurers, so that the banks' balance sheets look, superficially, in reasonable shape," he said. "But if the monolines [bond insurers] fail, the credit exposure that banks have hedged will revert, and the scale of the banks' exposure runs into many tens of billions."

The biggest banks have been reporting multi-billion dollar losses, but the Guardian quotes Credit Suisse analyst, Jonathan Pierce as saying, "Things could get worse in our view. It seems increasingly likely that recent events could escalate into a full-blown financial crisis."