WHY BANKS MAY BAIL OUT THE MONOS

It's a simple explanation: It would save them money, a LOT of money!

From MarketWatch:

Banks are considering such bailouts because they bought guarantees from bond insurers to hedge their own CDO exposures. If their counterparties are downgraded or if a major bond insurer runs out of money to pay claims, banks may suffer another round of painful write-downs.

To avoid this, banks are trying to take advantage of lower regulatory capital and rating-agency standards for the bond insurers. The current system gives roughly eight times more credit to one dollar of capital held by a bond insurer vs. one dollar held by a bank, according to Ackman.

"If offered the choice, what bank wouldn't invest $1 billion to avoid $8 billion of write-downs?" he asked.