The Monoline Downgrade Nonevent

How we've moved on from the Days of Panic: S&P today downgraded both Ambac and MBIA, and as of now (a couple of hours later) the news still hasn't made it to the NYT's business front page; on the wsj.com homepage, it's well below the fold, the 7th-most-important story of the moment.

And the stocks in question? MBIA is up more than 7%, while Ambac is up over 4%. The WSJ's Kathy Shwiff tries to think of some explanation of how this makes any sense at all:

The downgrade takes any notion of shareholder-unfriendly capital-raising off the table and could lead the insurers to shift attention and capital to "clean" subsidiaries, offering some possibility of a fresh start.

I suppose in that scenario the rump companies be left to wither slowly in run-off mode - a mode in which, if you believe the insurers, they will actually be profitable over time, and have some substantial present value.

But really I think the reason for the shares going up today is that MBIA and Ambac are worth less than $2.5 billion between them: they're small-caps, they're volatile, and there's a lot of trading and speculation going on. I wouldn't read anything more than that into a stock like Ambac going up 11 cents on the day.