Unlike Dorothy in “The Wizard of Oz,” the brutalized U.S. banking system will never again return to that comfortable, cozy, and cushy capital place it once happily referred to as “home.” But its “Wicked Witch” was its own greed. The curtain has finally been pulled back on the machinery, and the hot air used to pump up the U.S. banking system’s version of the Emerald City in the Land of Oz.

Moody’s Investors Service on Friday downgraded the debt rating of key bond insurers MBIA Inc. (MBI) and Ambac Financial Group Inc. (ABK), increasing expectations that more write-downs are in the offing for the U.S. financial-services sector, which has already written off nearly $400 billion in losses.

Moody’s Investors Service, subsidiary of Moody’s Corp. (MCO), downgraded MBIA to A2 from Aaa, and Ambac from Aaa to Aa. The downgrade caused MBIA shares to shed more than 13% of their value, with an 86-cent decline to close at $5.59 on Friday. Ambac shares fared a bit better, gaining 2 cents to close at $2.05.

Moody’s downgrades follow similar reductions from Standard & Poor’s and Fitch Ratings Inc.

The US economy is likely to “stagnate” in the second half of this year, says the International Monetary Fund (IMF).

It has also warned that there will be no real growth in activity in the US until well into next year.

US stocks are hurting, too, particularly those in the financial sector. Shares in banking giants Citigroup and Merrill Lynch both dropped about 6% at the end of last week — and there are rumors that bellwether Merrill is on the verge of issuing a profits warning.

The Sage of Omaha has spoken out on the state of the US economy. “From a common-sense standpoint right now, we’re in a recession,” Warren Buffett said today on CNBC television.