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This should put to bed the notion that monoline insurer's books shouldn't be marked to market. The reason why Ambac has big operating losses is because the stuff that they insure is worth less and taking big losses. It's just that simple. If you allowed them to keep "fake" values on the books while the real stuff is tanking, then when the insured losses are actually realized, shareholders will get slammed very, very hard. If the mark to market losses are truly inaccurate, then when things are realized, the company will be able to book a gain. Until then...

The losses are real, and market pricing cannot be circumvented for any significant amount of time without the perpetrator having to pay penance.

'nuff said! (for those that ever followed Stan Lee:-) )