Ratings Agencies
Posted 03/14/08 at 12:52 PM by Farstrider
So, earlier this week, Standard & Poors got off their rather bruised behinds to announce that the worst of the credit crunch was over. You really would have thought that they would have learnt better from their fantastic record (See also "SIVs - a safe haven"!) since the "Credit Crunch" began. Sure enough, at 9am NY time today, Bear Stearns announced that it had severe liquidity & funding issues. Mmm yeah I guess the worst IS over! Bear has arranged emergency funding with the New York Fed, and JP Morgan, in what appears to be a bizarre and clandestine case of the Fed using JP Morgan as an agent to support a bank in crisis, and JP using the situation as a way to pick up an acquisition on the cheap. Hmm. Interesting, especially given the recent rumours over JP Morgan's close to $100bio Second Lien loan book, all originated through Chase, which, if rumours are to be believed, is worth the pricely sum of zero. Anyway, that takes me away from the real target of my rant.
It slightly exasperates me when people say they don't know who to blame for the "Credit Crunch", or worse, say that they blame the big banks. Let's be totally straight up about this, the ratings agencies should carry the can. They rated stuff that is quite clearly worthless as AAA and put their faith in models that have now been spectacularly debunked. If they want to ever have a chance of being involved in finance again, they need to get out from hiding under a rock, and downgrade all the crap out there, because right now, noone has a fucking clue what is AAA, and what is CCC (now standing for Carlyle Capital Corporation). Why do you think Banks are charging 25% margin on AAA assets? Because they can't trust the rating, because the ratings agencies are selling out to the Fed. After years of sitting in the Banks' pockets and being paid to rate structured finance deals that made anyone with a sense of integrity blanche, they have now decided that their best chance of survival is to let the policymakers twist their arms into delaying downgrades. Guess what? That's not going to cut it any more. Downgrade this stuff now, because the only thing that suffers more than rating agency reputation, is the market itself. Without more downgrades we get more haircuts, more margin calls, more deleveraging, more selling, and that means more Thornburgh Mortgages, more Carlyle Capital, more SIV nonsense, and yes, ultimately more Bear Stearns.
Why on earth anyone gives a shit what Standard and Poor's or Moody's think right now totally and utterly befuddles me.
It slightly exasperates me when people say they don't know who to blame for the "Credit Crunch", or worse, say that they blame the big banks. Let's be totally straight up about this, the ratings agencies should carry the can. They rated stuff that is quite clearly worthless as AAA and put their faith in models that have now been spectacularly debunked. If they want to ever have a chance of being involved in finance again, they need to get out from hiding under a rock, and downgrade all the crap out there, because right now, noone has a fucking clue what is AAA, and what is CCC (now standing for Carlyle Capital Corporation). Why do you think Banks are charging 25% margin on AAA assets? Because they can't trust the rating, because the ratings agencies are selling out to the Fed. After years of sitting in the Banks' pockets and being paid to rate structured finance deals that made anyone with a sense of integrity blanche, they have now decided that their best chance of survival is to let the policymakers twist their arms into delaying downgrades. Guess what? That's not going to cut it any more. Downgrade this stuff now, because the only thing that suffers more than rating agency reputation, is the market itself. Without more downgrades we get more haircuts, more margin calls, more deleveraging, more selling, and that means more Thornburgh Mortgages, more Carlyle Capital, more SIV nonsense, and yes, ultimately more Bear Stearns.
Why on earth anyone gives a shit what Standard and Poor's or Moody's think right now totally and utterly befuddles me.
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Well Moody's and S&P should have more information than the casual investor, which means that they should be able to properly value the paper. That's why their opinion should matter, but in practice, it's not working out that way.
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