Moody’s has indicated that it might lower the ratings of monolines MBIA and Ambac. The possibility prompted New York Times columnist and blogger Floyd Norris to ask:
Has anyone thought in recent months that either of those insurers deserved its AAA rating?
Readers here will know we have harbored no such illusions. Last February, we expressed skepticism when Standard and Poor’s and Moody’s returned the monolines to AAA status. We said at that time,
Something is being stretched here -and it’s not just credibility.
Evidently, reality will play the elastic band only so far before it snaps back in the face. Conventional wisdom and billions in losses and write-downs notwithstanding, neither the real economy nor Wall Street is out of the dark and scary woods yet. You will soon see more than just the rating agencies change course and take cover once again.
Standard and Poor’s, the giant credit rating agency, affirmed the top “AAA” ratings of bond insurers Ambac and MBIA yesterday. What seems odd about this is that it’s as if the past six months, which saw the most seismic disruptions in the credit markets in generations, wiped out tens of billions from corporate balance sheets and set central bankers and government officials into a tizzy, never happened. S&P sees these major bond insurers as no worse than they were a year or two ago, if you believe the ratings. Granted, they have received some infusion of capital, but the amounts are far below potential payout liabilities if things get worse. Both S&P and Moody’s were a little slow to pick up on the sea change that was occurring in the credit markets in the first place. The boards and top management of Ambac and MBIA didn’t even seem to be on the boat. Fitch Ratings still maintains an ‘AA’ rating for Ambac, which it downgraded in January.
As the world continues to reel over uncertainty regarding the future of CDO’s, structured investment vehicles and their ilk -even their value is hard to measure- are we really to believe that the institutions whose fate is most linked to the worth of these vehicles are still “AAA”?
It’s a little like having a giant measles epidemic. The hospital that specializes in its treatment is full to the brim with measles patients. But the CDC says it’s really safe for visitors and other patients. Would you go there to have your appendix taken out?
Something is being stretched here –and it’s not just credibility.
