I know, I know. You can just FEEL the excitement in the air in the nation after my scintillating appearance on today’s G. Gordon Liddy Show on Radio America (mp3 format).

We talk about Citigroup, bailouts, and how you can get involved to stop them. Check it out!

This isn’t exactly the sexiest aspect of the bailout issue, but there are serious questions about how the plan will treat bond insurers. Municipalities have long participated in securities markets in order, effectively, to lower the cost of borrowing to governments.

The so-called “monoline” insurance companies that provided financial guarantees to municipalities have, like so many others, gotten themselves into trouble by getting into subprime mortgages, collateralized debt obligations, and other troubled corners of the financial world.

As a result, large bond insurers like MBIA and Ambac have been lobbying for their own piece of the $700 billon bailout pie.

But “unfortunately” for them, the market appears to be correcting itself even without a bailout. Berkshire Hathaway Assurance Corporation and Municipal and Infrastructure Assurance Corporation have entered the market themselves, providing liquidity in a tough situation.

A friend of mine who works in that world recently wrote me with these thoughts about applying the Troubled Asset Recovery Program (TARP) to the monolines…

“[T]he current state of the legacy monolines does not present a systemic concern to the municipal market or the overall functioning of the capital markets. Despite the troubles, the municipal finance market continues to function, although municipalities are experiencing an increased funding cost associated with the liquidity premium currently being charged by the market. In short, municipalities are utilizing other forms of credit enhancement (such as letters of credit and standby bond purchase agreements), albeit at a higher cost than financial guaranty insurance.

Short of nationalizing the legacy monolines and providing a complete guaranty of all their obligations (over a trillion dollars), a partial governmental support will only further delay the real underlying asset price discovery that is essential for the proper functioning of the credit markets.

TARP is not needed; the market has responded. There have been three “private capital” responses to the troubles being experienced by the legacy monolines in the financial guaranty industry. Municipal and Infrastructure Assurance Corporation, which is being co-sponsored by Macquarie Group and Citadel Investment Group, Berkshire Hathaway established Berkshire Hathaway Assurance Corp, a new financial guarantor, and WL Ross & Co opportunistically invested in Assured Guaranty, an existing financial guarantor.”

Get ready for hundreds of these stories in the next few months as EVERYBODY IN THE COUNTRY tries to find some way to position themselves as a beneficiary of some of that $700 billion mountain of money.