Investors anticipated that things would be bad when MBIA (NYSE:MBI) reported earnings. The largest bond insurer posted a loss of $2.3 billion, or $18.61 a share, compared with profit of $181 million, or $1.32 per share, a year earlier. No wonder the company made its announcement at midnight.

MBIA took a $3.4 billion charge after writing down the value of residential and commercial mortgages, as well as complex financial instruments that it guarantees.

The numbers from the financial firm are a clear indication that write-offs for mortgage-related securities at banks and investment houses may get worse. That probably makes a bailout of MBIA and Ambac (NYSE:ABK) more difficult. Any bank putting money into the companies will have to wonder if it is enough.

Regulators want banks to put up the money to keep MBIA in business. If the insurer fails, the value of many of the muni bonds it insures will drop, leading to more write-offs at financial companies that hold these securities. The banks may not have the capital, but their arms will be twisted by regulators using their self-interest as an excuse.

If the bond insurers are critical to keeping the financial system from crumbling, then the states and federal government should find another way to back their debt. It will save local and state treasuries billions of dollars and won't force banks to put up money that they don't have.

Douglas A. McIntyre is an editor at 247wallst.com.