MtM means mark-to-market. Simply stated, each quarter companies will report the current market value of assets that have fluctuating prices. In this case it would be derivatives. The value of those derivatives can rise or fall from what they are on the books for over the course of a quarter. MtM revalues them for the new the financial statement.
In this case, I don't know why MBIA would be holding CDS (credit default swaps or default insurance) with themselves as the reference entity. Companies that MBIA could possibly have to pay claims to would purchase CDS's in case MBIA failed to pay up.
If the value of credit default swaps on MBIA fell, I can't see how that affects MBIA's balance sheet if they are one of the counterparties.
N_, it will not matter since our accounting practice is to book enough "potential litigation revenue" each quarter to offset any MtM losses. Since we expect another $10B and have only pre-booked $2.2B of that, you can see we have a lot more fantasy money left to play with.
Keep your eyes on the operating results, buybacks/putbacks, settlements/commutations, delinquency rates in the CDOs, booking putbacks and loss reserves additions/reversals as the fluctuations in the CDS are accounting/paper gains/losses and don't mean much.