Bond insurer crisis moves to Capitol Hill

Video

More video

The billionaire investor offers a plan to reinsure up to $800 billion currently insured by troubled bond insurers. Play video

NEW YORK (CNNMoney.com) -- The bond insurance crisis will come under congressional scrutiny Thursday as a number of high-profile players including Ambac and MBIA executives and New York Gov. Eliot Spitzer are scheduled to testify before lawmakers.

A total of 10 witnesses are scheduled to appear before a subcommittee of the House Financial Services Committee.

Much of the focus will be on the state of the industry, what impact a downgrade by the credit rating agencies on these cash-strapped companies could have on the broader financial markets and potential regulatory reforms, according to the office of Rep. Paul Kanjorski, D-Pa., who chairs the capital markets subcommittee.

Besides Spitzer and executives from Ambac and MBIA, Eric Dinallo, the superintendent of the New York State Insurance Department, is also due to testify. Dinallo has remained at the center of the crisis following attempts to organize a rescue effort for the troubled industry.

Bond insurers like Ambac (ABK), MBIA (MBI) and FGIC face possible downgrades by the credit rating agencies after they found themselves overwhelmed by claims on mortgage-backed securities and short on capital.

Experts fear that such a move would severely damage the bond insurers' business and possibly result in further writedowns at some of the nation's leading financial firms, which have already lost billions as a result of the ongoing credit crisis.

The hearing comes will come just two days after famed billionaire investor Warren Buffett offered to take over the liabilities of the troubled bond insurers by reinsuring about $800 billion in tax-exempt or municipal bonds.

Also scheduled to testify is Bill Ackman, a hedge fund manager at Pershing Capital Management and vocal critic of the bond insurers, as well as the director of trading and markets division of the Securities and Exchange Commission and Fitch Ratings' global head of insurance.

Thomas Leighton, the mayor of Wilkes-Barr, Pa., and Richard Larkin, the senior vice president of the Herbert J. Sims & Co., a leading underwriter of municipal bonds are also due to speak.