The Treasury has decided that just bailing out American International Group (NYSE: AIG) to the tune of $122.8 billion and counting is not going far enough. Now it's time to use our money to bail out more insurance companies. As it turns out, the insurers that are likely to get the money are the same ones that took a blood bath earlier this month. The companies seeking a bailout include Met Life (NYSE: MET), Hartford Financial Services (NYSE: HIG), and Prudential Financial (NYSE: PRU).

You may be wondering, what crime did I commit that makes it socially acceptable for my money to be used to bailout the insurance industry? Aren't my home, auto, and life insurance premiums up to date? If so, what gives the insurance industry the right to use my taxes to pay for their investment mistakes? Because that is exactly what the insurance companies are doing.

How so? Their books are loaded down with asset-backed securities such as mortgage-backed securities (MBSs) and collateralized debt obligations (CDOs) that vastly exceed their shareholder's equity. These securities are not worth much -- in fact, a recent report suggested that CDOs were worth 10 cents on the dollar at best. If the insurers have these stated on their books at 60 cents on the dollar, the mark to market process could wipe out a significant portion of their capital.

The banking system has been crumbling for over a year, but last month's collapse of American International Group (NYSE: AIG) -- which prompted an $85 billion government takeover -- suggests that insurance is not immune from the problems. As a reminder, AIG got snared in the $62 trillion Credit Default Swap (CDS) market whose growth was spurred by McCain advisor, Phil "Americans are Whiners" Gramm.

And as insurance crumbles, banks keep suffering. Bank of America (NYSE: BAC) and National City Corp. (NYSE: NCC) are both hurting. How much?

• Bank of America's earnings plunged 68% to $1.18 billion, or $0.15/share -- missing by 60% analysts' forecast of 62 cents. Bank of America will raise capital by selling $10 billion of common stock and slashing its dividend in half from 64 cents to 32 cents. One analyst cut the bank's 2009 earnings estimate to $2.50 per share from $3 per share -- this is well below the $3.12 per share from a Thomson Reuters analyst poll -- and lowered his price target by $2 to $26.

• National City Corp. and its National City Bank both suffered debt downgrades from Fitch. For instance, Fitch slashed the bank subsidiary's long and short-term Issuer Default Ratings (IDR) to A- from A. And it lowered the bank and holding company's Individual rating to C from B.

Hartford Financial (NYSE: HIG) closed at $62.06 Thursday. HIG October option implied volatility of 52 is above its 26-week average of 40 according to Track Data, suggesting larger price movement.

Travelers (NYSE: TRV), a leading property casualty insurer, closed at $44.61 Thursday. TRV October option implied volatility of 37 is above its 26-week average of 32 according to Track Data, indicating larger price movement.

Genworth Financial (NYSE: GNW) closed at $15.02 Thursday. GNW October option implied volatility of 71 is above its 26-week average of 52 according to Track Data, suggesting larger price movement.

XL Capital (NYSE: XL), provider of global reinsurance coverage, closed at $18.63 Thursday. XL October option implied volatility of 78 is above its 26-week average of 73 according to Track Data, suggesting larger movement.

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

MOST NOTEWORTHY: UQM Technologies, Blue Nile, NPS Pharmaceuticals, Massey Energy and Hartford Financial were today's noteworthy downgrades:

• Merriman downgraded shares of UQM Technologies Inc (AMEX: UQM) to Neutral from Buy after Phoenix Motorcars delayed its electric vehicle manufacturing ramp, as they view the company's Phoenix Motorcars relationship as the primary driver for near-term growth.
• Citigroup downgraded shares of Blue Nile Inc (NASDAQ: NILE) to Sell from Hold on valuation as they believe near-term risks outweigh rewards. They see risk to Q3 revenue estimates and their analysis suggests an in-line quarter at best.
• NPS Pharmaceuticals Inc (NASDAQ: NPSP) was downgraded to Neutral from Buy at Oppenheimer and to Hold from Buy at Jefferies. Oppenheimer lowered shares following disappointing Gattex data; Jefferies believes the P3 GATTEX results in short bowel syndrome make the chances of successful low-dose approval unpredictable.
• Friedman Billings downgraded Massey Energy Company (NYSE: MEE) to Underperform from Market Perform based on valuation, 2008/2009 outlook, spinoff of Patriot Coal appears to be a better investment option, and another blow to mountaintop mining and permit issues.
• JP Morgan removed The Hartford Financial Services Group Inc (NYSE: HIG) from their Focus List; however, they believe the company's fundamental outlook remains positive and expects strong Q3 results.

OTHER DOWNGRADES:

• Morgan Stanley downgraded EV3 Inc (NASDAQ: EVVV) to Underweight from Equal Weight.
• Business Objects SA (NASDAQ: BOBJ) was downgraded to Hold from Buy at Roth Capital.
• Goldman downgraded The Nasdaq Stock Market Inc (NASDAQ: NDAQ) to Neutral from Buy.
• Banc of America downgraded The Pepsi Bottling Group Inc (NYSE: PBG) to Neutral from Buy.

Monday December 11

• Hartford Financial (NYSE: HIG) to hold a 10am conference call regarding 2007 earnings guidance
• FCC to hold a hearing on Media Ownership at 1pm
• Texas Instruments (NYSE: TXN) to hold Q4 mid-quarter update at 5pm

Tuesday December 12

• Six Flags (NYSE: SIX) to hold mid-quarter update at 8:30am
• Goldman Sachs (NYSE: GS) to hold Q4 earnings conference call at 11am
• General Electric (NYSE: GE) to hold financial update conference call at 3pm

Wednesday December 13

• Dynegy (NYSE: DYN) to hold 2007 earnings and cash flow estimates webcast at 8am
• Pennsylvania Gaming Control Board to hold public hearing at 9am

Thursday December 14

• Bear Stearns (NYSE: BSC) to hold Q4 earnings conference call at 10am
• PDUFA Date for Novartis' (NYSE: NVS) Rasilez

Friday December 15

• PDUFA Date for Oscient Pharmaceuticals' (NASDAQ: OSCI) Factive