For MBIA (NYSE: MBI), one of the world's largest bond-insurance companies, Thursday marked yet another day of wild stock-price swings. After weeks of rumors of everything from bankruptcy to takeovers in the bond market, investors who've endured the roller-coaster stock moves may wonder whether MBIA actually stands for "Most Baffling Investment Alive."

The company announced a fourth-quarter loss of $2.3 billion, or $18 per share, after slashing the value on collateralized debt obligations tied to the now-infamous real estate debacle. That's a big difference from Q4 2006, when the New York-based company earned $181 million, or $1.32 per share.

MBIA finished Wednesday trading up 11%, though its shares traded lower earlier in the day. CEO Gary Dunton helped buoy the stock, reassuring investors that MBIA was bent on maintaining solvency -- a coveted topic in the bond-insurance arena, and one that's even scared the likes of Ambac (NYSE: ABK).

Are we on the same page here?
Dunton, along with CFO Chuck Chaplin, claimed that recent rumors stood without merit, and maintained that MBIA held enough liquidity to handle a full six years of claims coverage.

Chaplin added, "There is not an event on the horizon that anyone can foresee that would result in MBIA becoming insolvent." Those are strong words from a CFO who's seen his stock fall nearly 80% in the last year, and who just announced a writedown that ultimately far exceeded his company's current market cap.

Confidence aside, Standard & Poor's -- one of three major ratings firms, and a unit of McGraw-Hill -- placed MBIA on a review status, implying a significant chance of a downgrade in the next 90 days. Investors and ratings firms both fear an all-out flood of insurance claims, mainly on mortgage-backed bonds, in the wake of rampant defaults on residential mortgages.

In what some consider a drastic attempt to keep its head above water, MBIA has recently raised around $1.5 billion to shore up its battered balance sheet. MBIA's quick moves to gather much-needed funding may explain why it's managed to avoid a credit downgrade.

The one remaining wild card in the bond insurance industry is Warren Buffett's Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B), which could take over what little power remaining players hold. With a bulletproof balance sheet and a reputation Mother Teresa would envy, Berkshire could easily and quickly become an overwhelming force in the industry.

Bond insurers rely heavily on the confidence of their customers, who entrust them with the security of trillions of dollars in bonds. If either Ambac or MBIA lose their coveted AAA status, their future could darken significantly, especially with Berkshire's entrance into the marketplace.

Here today, gone today
In any event, the bond insurers have learned an important lesson on the downsides of taking unknown risk after moving into insuring mortgage-backed securities in recent years. As in all speculative bubbles (unforeseen or not), the foolish and greedy get mercilessly purged by investors seeking safety and protection.

Bond insurers' immense volatility lately proves that no one truly knows where the industry's heading. Massive debt-related damage, even at titanic banks like Citigroup (NYSE: C) and Bank of America (NYSE: BAC), shows us that even the biggest balance sheet offers no guaranteed protection.

As early as last October, market pundits claimed that mortgage giant Countrywide (NYSE: CFC) was "too big to fail." But if it hadn't been scooped up by B of A, its future would have looked dismal at best. Similarly, any confidence bond insurers have regained could be wiped away faster than you can yell "bailout."

As MBIA and other insurers continue to sort out their own messes, they'll need to look beyond short-term fixes. These companies need to reevaluate their entire business model, and question whether the easy profits they once counted on have deteriorated -- or vanished entirely.

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Fool contributor Morgan Housel still thinks bond insurers are vulnerable to insolvency. He owns shares in Berkshire Hathaway -- as does The Motley Fool -- but Morgan holds none of the other companies mentioned in this article. The Fool's disclosure policy is all about investors writing for investors.