The selloff this afternoon was apparently driven by the Fitch downgrade of FGIC, a bond insurer. Frankly, that was probably just an excuse by bears who wanted to sell the rally, but the issue is important.
The market now waits to see if AMBAC and MBIA can maintain their AAA ratings. If they don't, the banks and brokers will have another round of writedowns. According to Meredith Whitney, an analyst at my old firm Oppeheimer, those writedowns could total another $70 billion. Considering that she correctly predicted that Citigroup would have to cut their dividend and has largely been right about this whole mess, one must give her opinion some weight. However, it seems to me that it would be easier for the banks and brokers to pony up some capital for these bond insurers than suffer the writedowns, so I expect a bailout to happen soon.
If a bailout is announced, the market will take great comfort from that and the low set on 1/23 will likely prove to be a good long term bottom. If the banks have to write off another $70 billion, I'm not so sure.