Another Indicator of the Economic Disaster

Here's another indication of the scope of the disaster:

NEW YORK, Sept 1 (Reuters) - MBIA Inc. on Thursday said it had insured $2.88 billion of municipal debt in the area devastated by Hurricane Katrina. Nearly $1.13 billion of that debt was for New Orleans issuers, with almost $1.3 billion for other Louisiana issuers.
NEW YORK, Sept 1 (Reuters) - Financial Security Assurance on Thursday said it had insured $2.2 billion of municipal bonds sold by issuers from the areas devastated by Hurricane Katrina.
NEW YORK, Sept 1 (Reuters) - Ambac Financial Group said it insured just over $3.8 billion of municipal bonds in regions hit by Hurricane Katrina, but a spokesman added the insurer could not say what its final loss might total.

That's close to $9 billion in municipal bonds at risk of default. Most of that money likely went for infrastructure that will need to be rebuilt. How does a city that doesn't exist cover its debt service?
Update: The NYT reports that the municipal bonds affected by Katrina that are covered by the four largest insurers total $14 billion.