reality-based educator

An important Bloomberg article this morning spills the beans on how the game is really played on Wall Street.

# Standard & Poor's, Moody's Investors Service and Fitch Ratings are masking growing losses in the market for subprime mortgage bonds by not cutting the credit ratings on about $200 billion of securities backed by home loans, Bloomberg is reporting.
# This is precisely the mark-to-model and conflict of interest issue Minyanville Professor John Succo first raised more than a month ago.
# Bloomberg has found that almost 65% of th bonds in the indexes that track subprime mortgage debt don't meet the ratings criteria in place when they were sold.
# So why aren't the ratings agencies downgrading the credit ratings?
# Downgrades by S&P, Moody's and Fitch would force hundreds of investors to sell holdings, Bloomberg says.
# Meanwhile, executives at S&P, Moody's and Fitch say they are waiting until foreclosure sales show that the collateral backing the bonds has declined enough to create losses before lowering ratings on some of the $6.65 trillion in outstanding mortgage-backed debt.
# That certainly sounds reasonable... until one realizes that both S&P and Moody's maintained investment-grade ratings on Enron debt until days before the company filed for bankruptcy.

// posted by Reality-Based Educator @ 10:36 PM