Fitch Ratings today (Jan.18) cut the rating on Ambac Assurance from AAA, the highest rating, to AA, the third highest. The parent Ambac Financial was dropped from AA to A, the sixth highest rating. Ambac insured the ballpark bonds. The deal was questionable from the beginning, because the bonds yielded a whopping 7.66 percent, 2 to 3 percentage points higher than comparable insured muni bonds. On Thursday, another bond rater, Moody's, put Ambac on watch for a possible ratings cut. Ambac has taken a $3.5 billion write-down, equivalent to two-thirds of its net worth. In theory, when a bond insurer is downgraded, so are the bonds it has insured. Indeed, many insured muni bonds are now trading as if they were not insured. The ballpark bonds were kinky anyway. Merrill Lynch was supposed to sell them; it never did -- holding them for its own account, reaping those juicy yields. Merrill in its last quarter wrote down $15 billion of its mortgage-related debt. The market has pounded the stocks of both Ambac and Merrill this week.