What will be real-life effects of monoline downgrades?

Monolines are in deep trouble.  That’s not news –  well-covered by FT Alphaville, Calculated Risk, Reggie Middleton, and Mish’s. 

 FT Alphaville notes today:

In a credit note sent out to clients on Friday, RBS started to outline what it thought was on the horizon for the monolines:

From a rating perspective, in the absence of a bail-out, we see the agencies as more likely to downgrade than not, and once the first downgrade has gone through (likely Fitch with respect to SCA next week), it will become much easier for the other agencies to follow suit with other monolines. We now expect the future for the monolines to play out as follows. Fitch will likely downgrade SCA next week, and FGIC and Ambac the following week – assuming it sticks to its own six week deadline. Moody’s will follow in due course with downgrades to Ambac, MBIA, FGIC and SCA, and S&P will downgrade FGIC. The damage the downgrades of other agencies will do to these monolines is likely to prompt the others to downgrade as well. In theory, these downgrades will be to the double-A category, based on the comments of the agencies so far. 

http://ftalphaville.ft.com/blog/2008/01/18/10295/monoline-dominoes-who-falls-when/trackback/

 My question:  As a practical matter, what will happen to, for example pension funds, if and when monolines are downgraded further?  Please comment.

Charts:  click this link:Charts from 1/17/08

Other articles:

http://reggiemiddleton.typepad.com/reggie_middletons_perpetu/2007/11/ambac-is-effect.html

http://globaleconomicanalysis.blogspot.com/2008/01/ambac-odds-of-default-73-mbia-71.html

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