3.11.2008

S&P and Moody's shenanigans

With the lights out
It's less dangerous
Here we are now
You're an anus

I never knew what those Nirvana lyrics meant, but now I think they were predicting the current ratings agency farce.

Moody's, S&P Defer Rating Cuts on AAA Subprime, Hiding Losses
Even after downgrading almost 10,000 subprime-mortgage bonds, Standard & Poor's and Moody's Investors Service haven't cut the ones that matter most: AAA securities that are the mainstays of bank and insurance company investments.

None of the 80 AAA securities in ABX indexes that track subprime bonds meet the criteria S&P had even before it toughened ratings standards in February, according to data compiled by Bloomberg. A bond sold by Deutsche Bank AG in May 2006 is AAA at both companies even though 43 percent of the underlying mortgages are delinquent.

Sticking to the rules would strip at least $120 billion in bonds of their AAA status, extending the pain of a mortgage crisis that's triggered $188 billion in writedowns for the world's largest financial firms. AAA debt fell as low as 61 cents on the dollar after record home foreclosures and a decline to AA may push the value of the debt to 26 cents, according to Credit Suisse Group.

S&P and Moody's think it's less dangerous to keep the lights out and keep investors in the dark about the quality of the bonds. Nevermind that the reason they exist is to analyze and tell the truth about bonds. And the anus is anyone who buys something based on a AAA rating from S&P or Moody's.

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