Tuesday, May 20, 2008

The illusion of market ratings

Market Regulators, Read This Now
By Elizabeth MacDonald
May 15, 2008 4:25PM

*Ratings of Bear Stearns were listed as investment grade on the day the firm collapsed.

*Asset-backed securities loaded with subprime loans were uniformly given triple-A ratings up until late last summer, despite the fact that the housing market had already started turning south months before. Then last fall, the credit rating agencies knocked down within weeks to junk status almost half of the subprime mortgage bonds issued in 2006 and the first half of 2007.

*Embattled bond insurer MBIA still has its triple-A rating, despite its record losses and writedowns that has its thin wedge of a capital cushion teetering over the precipice.

*Bond insurer Ambac also somehow has held onto its triple-A rating by its fingernails, despite record losses. It continues to insure the debt of the state of California, the world�s sixth largest economy. Both MBIA and Ambac have equity capital of $31bn supporting a $1.4t book of business. Only 16 publicly traded companies can boast having a triple-A rating, something IBM doesn�t have.

*Enron was rated investment grade by the credit ratings agencies four days before it went bankrupt; WorldCom and Global Crossing kept their top grades within months of going belly-up.

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