Pressure ramped up on MBIA when the credit crunch rattled world equity markets in the second half of 2007. The company insured collateralized debt obligations, or CDOs, saddled with subprime debt. As a bond insurer, MBIA was almost completely reliant on its triple-A debt ratings; after all, if you can't get a guarantee from an insurer, what's the point?

The triple-A ratings were never questioned in the company's early days, when it insured municipal bonds almost exclusively -- defaults were rare on these vehicles, to say the least. However, the CDO situation involved an entirely different risk level. By mid-2007, major investment banks had already written off billions of dollars in CDO losses, and investors began to wonder why MBIA should be any different.

Last December, Moody's said it was placing MBIA's triple-A ratings under review for possible downgrade. The ratings firm said that MBIA was "at greater risk of exhibiting a capital shortfall than previously communicated," thanks in no small part to the $11.09 billion in subprime mortgage debt to which it was exposed.

Now fully under fire, MBIA announced news of a $1-billion investment from private-equity firm Warburg Pincus. Last January, in a scramble to save its triple-A status, the company slashed its dividend and said it would sell $1 billion in debt to raise capital. The amount the bond insurer planned to raise seemed woefully inadequate in comparison with its losses; in its quarterly earnings release that month, MBIA reported a $3.5-billion write-down on its credit derivatives portfolio.

The pressure was also rising on ratings agencies. Many on Wall Street accused the firms of turning a blind eye to the heightened risk inherent with certain types of CDOs, thereby leaving institutions and investors vulnerable to massive losses. Moody's and Standard & Poor's capitulated, to an extent; both firms vowed to review MBIA's ratings. However, both eventually affirmed their existing opinions. Meanwhile, Fitch Ratings was not convinced, and stated that MBIA needed more capital to support its asset-backed securities. MBIA's response couldn't have done much to boost investor sentiment -- the battered bond insurer asked Fitch to stop issuing credit ratings altogether on its insurance units.

What next? After admitting that its ratings may have been handed out in a rather Pollyanna-ish fashion, Moody's attempted to save face by dropping MBIA's rating from triple-A to A2 in June. As a result, MBIA found itself selling municipal bonds to raise cash; the downgrade triggered a collateral call of $4.5 billion and termination payments of $2.9 billion on guaranteed investment contracts. A fund-raising bake sale seems like a none-too-distant possibility in the future.

Most recently, MBIA said it had approximately $1.15 billion in exposure to three securitizations of loans backed by IndyMac Bancorp, which recently failed. In its upcoming earnings report -- for which no date has yet been confirmed -- analysts expect an operating loss of 94 cents per share.