Experts Question Ratings After S&P Gives Subprime Bonds Higher Rating Than U.S. Debt - TPMDC

[WillyT]

Experts Question Ratings After S&P Gives Subprime Bonds Higher Rating Than U.S. Debt
Brian Beutler | TPMDC
September 2, 2011, 5:18PM

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Influential investors are scratching their heads over a little-noticed development: After downgrading the country's credit rating, Standard & Poors is continuing to award AAA status to the same class of assets that nearly blew up the world economy three years ago. From Bloomberg: "S&P is poised to provide AAA grades to 59 percent of Springleaf Mortgage Loan Trust 2011-1, a set of bonds tied to $497 million lent to homeowners with below-average credit scores and almost no equity in their properties."

In other words: U.S. Treasuries -- widely believed to be the safest investment in the world -- don't make the cut, but subprime mortgage investments do? What gives?

Subprime mortgage-backed securities are the same class of assets that fueled the housing bubble and triggered the 2008 financial crisis. According to a 2010 report by the Senate Permanent Subcommittee on Investigations, the main ratings agencies fell over themselves to give these bonds AAA ratings, then abruptly downgraded them to junk status after mass mortgage delinquencies made maintaining the false ratings untenable.

According to the subcommittee's report, "In the end, over 90% of the AAA ratings given to mortgage-backed securities in 2006 and 2007 were downgraded to junk status, including 75 out of 75 AAA-rated Long Beach securities issued in 2006. When sound credit ratings conflicted with collecting profitable fees, credit rating agencies chose the fees." This triggered a collapse in mortgage-related securities leading to trillions of dollars in investor losses and a credit freeze that contributed to -- some contend caused -- the financial crisis.

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More: http://tpmdc.talkingpointsmemo.com/2011/09/investors-knock-sp-for-giving-subprime-bonds-higher-rating-than-us-debt-4.php

:wtf:

[MADem]

1. So they are a bunch of bs'ers, then? Why am I not surprised? nt