Hocus Pocus

Bloomberg had an article about the rating agencies not downgrading anything AAA. It is not only the monolines but the smoke and mirrors extends to mortgages. How can we ever get things back to normal if all these games keep getting played.

http://www.bloomberg.com/apps/news?pid=20601109&sid=aRLWzHsF16lY&refer=home

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.

and

``The fact that they've kept those ratings where they are is laughable,'' said Kyle Bass, chief executive officer of Hayman Capital Partners....... ``Downgrades of AAA and AA bonds are imminent, and they're going to be significant.''

and

Bass estimates most of AAA subprime bonds in the ABX indexes will be cut by an average of six or seven levels within six weeks.

I disagree because that means that all of a sudden the collateral that the Fed is not accepting can't be accepted. The rating agencies have proven that they can drag their feet long after whatever seems reasonable and sane.

Considering what was said above and elsewhere in the article this is scary.

A bank would have to increase its capital against $100 million of bonds to $16 million from $1.6 million if a bond was downgraded to below investment grade from AAA, under global accounting rules.

This is what I am saying.

The prospect of losses may be holding the ratings companies back, said Frank Partnoy, a University of San Diego law professor and former Morgan Stanley banker who has been writing about the impact of credit ratings companies since 1997.

``If the 800-pound gorilla moves, it's going to crush someone, so it's not going to want to move,'' Partnoy said. ``They know they will trigger a price collapse. They are understandably reluctant.''