Stocks of bond insurers tumbled immediately after news broke of New York Governor Eliot Spitzer’s involvement with a prostitution ring, but the incident is seen as only a modest negative for the monolines’ restructuring efforts.

The former Attorney General has been a key force behind a recent round of capital raising for bond insurers, who guarantee more than $2.4 trillion of debt. The insurers face billions of dollars of expected payouts after guaranteeing repackaged subprime mortgage bonds and other risky debt.

Much of the recapitalizing and restructuring process is over for now, after Ambac Financial Group Inc sold $1.5 billion of equity and convertibles last week. And the biggest regulatory force involved day to day in discussions among the insurers and banks and others has been Eric Dinallo, the New York Insurance Superintendent that Spitzer appointed. “Spitzer’s not being there erodes Dinallo’s authority ever so slightly,” said James Ellman, portfolio manager at hedge fund Seacliff Capital. Another hedge fund manager added: “I’m sure Dinallo’s going to do the same things now that he would have done before.”