In this series, we take a look at the 25 stocks on the S&P 500 Index (SPX) that have turned in the worst performance during the past decade -- what went wrong, and what happens next.

The No. 1 and No. 2 spots on our underperformers' list both belong to bond insurers. Along with MBIA Inc. (NYSE: MBI), Ambac Financial Group (NYSE: ABK) has been battered bloody during the past 12 months. Prior to that, the security was riding high on a years-long uptrend, before some of its more unsavory investments came to light amid the subprime crisis.

What went wrong? At No. 1 on our list of SPX losers, ABK lost a staggering 97% of its value during the 10-year period that concluded on June 30, 2008. From its May 2007 peak of $96.10, ABK is down 98%.

Ambac's story is not too different from that of MBIA. The company enjoyed triple-A ratings, even as its portfolio grew increasingly more risky under the weight of subprime-linked debt. As of December 2007, no insurer was more exposed to bad mortgage debt than Ambac -- the company insured $22 billion of subprime mortgage debt, nearly double the exposure of MBIA.

MAJOR PAPERS:

• Liberty Media Corporation (NASDAQ: LCAPA) filed a lawsuit in Delaware against IAC/InterActiveCorp's (NASDAQ: IACI) Barry Diller in an attempt to block Mr. Diller from completing the spinoffs of several units on terms that could dilute Liberty's voting power; the suit follows a suit filed by IAC against Liberty seeking to complete the divestiture on its own terms, the Wall Street Journal said.

OTHER PAPERS:

• The Evening Standard learned that billionaire Wilbur Ross is in takeover talks with AMBAC Financial Group Inc (NYSE: ABK) and that a deal could come within the next two weeks.

WEB SITES:

• According to analysts, TheDeal.com's Dealscape blog reported that the troubles at WellCare Health Plans Inc (NYSE: WCG) could lead to a sale of the company after the departure of the company's three executives.
• Citing a source close to Advanced Micro Devices Inc (NYSE: AMD), CRN.com reported that rumors of a merger between the company and International Business Machines Corporation (NYSE: IBM) "is nothing but speculation." A rumor in Mergermarket, which caused AMD's share price to spike almost 11% on Wednesday, said IBM's microelectronics division could merge with AMD "possibly in the near term."

AMBAC Financial (NYSE: ABK) -

Moody's affirmed ABK's triple-A rating. FBRC raised its rating on ABK to Outperform. ABK, a provider of financial insurance-guarantee products, was trading at $28.27 in early trading, above its close of $22.81 Friday. ABK January option implied volatility of 130 is above its 26-week average of 67 according to Track Data, suggesting larger risk.

MBIA (NYSE: MBI) -

Moody's affirmed MBI's triple-A rating. MBI was trading at $29.10 in early trading, above its close of $27.60. MBI January option implied volatility of 119 is above its 26-week average of 65 according to Track Data, suggesting larger price fluctuations.

Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

MBIA (NYSE: MBI) closed at $34.60 Wednesday.

MBI announced on Dec. 10 it will raise up to $1 billion of capital through an investment by Warburg Pincus. Warburg will also purchase $500 million of MBI common stock and support a shareholder rights offering of up to another $500 million. MBI estimates it will incur a case loss reserve of $500 to $800 million in Q4. Fitch is expected to release a review of MBI's credit standing soon. MBI December 30 straddle is at $4.30. MBI January option implied volatility of 111 is above its 26-week average of 63 according to Track Data, suggesting larger price fluctuations.

AMBAC Financial (NYSE: ABK), a provider of financial insurance-guarantee products, closed at $24.87 Wednesday.

Fitch is expected to release a review of ABK's credit standing soon. ABK January option implied volatility of 131 is above its 26-week average of 66 according to Track Data, suggesting larger risk.

Daily Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

AMBAC Financial Group, Inc. (NYSE: ABK) recently down $2.45 to $23.05 on concerns FRE's credit losses could affect bonds backed by ABK:

ABK December option implied volatility of 116 was above its 26-week average of 55 according to Track Data, suggesting larger risk.

MBIA Inc. (NYSE: MBI) recently down $2.17 to $32.25 on concerns FRE's credit losses could affect bonds backed by MBI:

MBI December option implied volatility of 118 was above its 26-week average of 53 according to Track Data, suggesting larger price fluctuations.

Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

MAJOR PAPERS:

• The Wall Street Journal reported that Berkshire Hathaway Inc (NYSE: BRK.A) chair Warren Buffett is in a position to help companies like Ambac Financial Group Inc (NYSE: ABK) and MBIA Inc (NYSE: MBI), possibly providing relief amid the credit market turmoil; sources speculate the company could also get into the bond-insurance business.
• Retailer Kohl's Corporation (NYSE: KSS) is today expected to announce an exclusive multi-year active wear licensing partnership with Fila Luxembourg S.a.r.l., a part of Fila Korea, according to the Wall Street Journal.
• According to a senior executive at Telefonica SA (NYSE: TEF), the company's efforts to obtain exclusive control of Vivo have stalled, the Financial Times reported.
• CEOs of CSX Corporation (NYSE: CSX), Union Pacific Corporation (NYSE: UNP) and Burlington Northern Santa Fe Corporation (NYSE: BNI) told the Financial Times that if any of the new four bills to regulate rates, that are currently being debated in congress, becomes law, accelerating investment in U.S. railroads' capacity could come to a halt.

OTHER PAPERS:

• News Corp's (NYSE: NWS.A) Rupert Murdoch said the company plans to replace nearly one million paid subscribers of the online Wall Street Journal with 10-15 million "who wouldn't pay a thing." Murdoch's long-term plan is to penetrate developing markets, The Australian reported.

Jim Cramer says the quarter-point cut means the Fed supports the market and keeps builders and lenders in check.

This market likes this Fed. The market knows that the Fed is going to backstop them if things go bad. That, plus, Wednesday was the last day of a great month, and the buyers who waited until the big bad event was out of the way were in buying in full force.

None of this should surprise you. The Fed is not looking at GDP or gold. It is looking at Countrywide (NYSE: CFC) (Cramer's Take) and Ambac Financial (NYSE: ABK) (Cramer's Take). The market is worried, as it should be, about MBIA (NYSE: MBI) (Cramer's Take). Notice, the housing-related stocks needed a half-point, they only got a quarter, and they can't rally. Everything else has.

That's because the buyers know the Fed is going to cut just fast enough to ease these companies out of existence and not shut them down at once. It is going to let those stocks go down, but it is not going to let them destroy the economy. That's why you do a quarter and not a half. That's why you do a quarter and not nothing.

TheStreet.com's Jim Cramer says the price of no more rate cuts from the Fed would be foreclosures. Lots of them.

Have you noticed that MBIA (NYSE: MBI) (Cramer's Take) and Ambac Financial (NYSE: ABK) (Cramer's Take) are just being crushed today?

More important, has the Fed noticed?

Lots of people have asked me where I came up with the $500 billion loss number I've been mentioning. Here's the deal: A large group of people, 50% of the 14 million homebuyers, are going to default on their "2 and 28" adjusted-rate mortgages now that they are being reset. Many of these people paid for the 2% with home equity loans that they can't pay back.

Think of those millions of no-money-down ads. Those worked! These people can't pay now that the resets are in the house. Others, allegedly AAA borrowers, will find themselves defaulting, and the insurance won't be paid. That's horrible, but that's what the stocks are saying.

MOST NOTEWORTHY: Trident Microsystems, Comcast, Level 3 Communications, Ambac Financial and MBIA Inc were today's noteworthy downgrades:

• Jefferies downgraded shares of Trident Microsystems Inc (NASDAQ: TRID) to Hold from Buy and lowered their target to $9 from $20 following the company's mixed quarter as they expect TRID to lose share in the TV market and face increasing price pressure. Shares were also downgraded to Hold from Buy at Deutsche Bank. Oppenheimer lowered Trident to Neutral from Buy, citing disappointing December guidance, delay in TV ramp, and expectations that 2008 will be a peak year for TV chip ramp revenues.
• CIBC downgraded shares of Comcast Corporation (NASDAQ: CMCSA) to Sector Performer from Outperformer following the weak Q3 results to reflect increasing competition in telco video, slower broadband growth and the weakening economy.
• JP Morgan downgraded Level 3 Communications Inc (NASDAQ: LVLT) to Neutral from Outperform following disappointing Q3 results and guidance.
• Friedman Billings downgraded shares of Ambac Financial Group Inc (NYSE: ABK) and MBIA Inc (NYSE: MBI) to Market Perform from Outperform citing lack of near-term catalysts and uncertainty surrounding the credit markets.

OTHER DOWNGRADES:

• Banc of America lowered its rating on Eli Lilly and Company (NYSE: LLY) to Neutral from Buy.
• WestLB downgraded GlaxoSmithKline PLC (NYSE: GSK) to Sell from Add.
• Societe Generale downgraded France Telecom (NYSE: FTE) to Hold from Buy.
• Franklin Resources Inc (NYSE: BEN) was downgraded to Market Perform from Outperform at Friedman Billings and at Keefe Bruyette.