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.
MBIA, the monoline insurer, announced last week that it no longer wanted to be rated by Fitch Ratings, the only holdout on its AAA status. The move has opened up quite a Pandora’s box, especially for people who have been skeptical of the AAA ratings MBIA received from Standard and Poor’s and Moody’s. We have been among them. But perhaps some creativity is called for in this time of credit turbulence.
When the sea is churning and the waves are heaving the ship, naturally it helps to call for a change in the weatherman. But why stop with Fitch? Reporters are a bit of a pain to MBIA right now. Why not just tell the troublemakers you don’t want them to write about you any longer. Same with columnists, commentators and bloggers. Especially bloggers. Also, certain investors have had way too much to say about the company. Tell them you don’t want them to own your stock. There’s also the SEC, which has an annoying habit of asking a lot of pesky questions. Fire them too. People will begin to get the message about MBIA.
Actually, we think they already have.
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.
