naked capitalism

tom a taxpayer says:

S&P's model run wild is a result of S&P's frantic attempts to reinvent itself…an effort to ward off investigations and prosecutions into S&P's collusion with the Wall Street Mafia. S&P's prostituted itself, providing S&P's stamp of approval on the "securities" peddled by Wall Street's scam artists.

Views By a says:

Even funnier than S&P marking AAA down to BBB- is that people actually believed it. Surely, rather than selling them because they had to, they should have been on the phone last week to S&P to say that there was no way these products should be BBB-. But they had products in their portfolio which they didn't understand, so much better to blame S&P for its mistake rather than questioning why the heck they are so ignorant in the first place. *If you don't understand the product, don't buy it.*

a

Francois says:

They implement a new model without doing any quality control??

I do not think the word "incompetence" begin to describe this monumental screw up.

Brick says:

What interests me is the claim that they got things wrong due to the timing of projected losses on the mortgages. As leases expire over time you would expect renegotiation of leases to a lower value and some to just give up on the leases, putting mortgage holders under pressure. You could then project losses based on lease expiration. My concern would be that when a firm leasing property goes bankrupt those leases become void which would tend to front load losses. For the securities to move from BBB to AAA you would expect losses from here on in to reduce which fits in nicely. My guess is that the wrong assumption made is that firms will continue to go out of business over the next year keeping losses high. Iguess we will never know what really went wrong but it looks suspicious that only 3 securities were changed.

Ginger Yellow says:

Ok, got it now. Here's the relevant passage, describing first the original methodology update, then the one that caused the bonds to be re-upgraded:

"First, we aggregate recoveries from defaults in the 'AAA' scenario and credit impaired assets up to the crossover
date. The crossover date is the point in time where the allocation of principal and losses to the super seniors
changes to pro rata from sequential. For many deals, the crossover date occurs when aggregate losses reach
30% in the scenario.

marsha donner says:

Yves and others…why not consider the possibility that the 'new model' might actually be a more accurate model.
given the situation overall, and knowing the history of ratings generally and typically above what they should be for safety within the total system…likely all rating agencies SHOULD be creating new models..and very likely these new models should produce downgrades in ratings.
perhaps not from AAA to BBB..but i don't see this discussed here…a site where it might well be discussed.
michael

tom a taxpayer says:

Ginger @7:39 -Thanks for digging out the S&P description of the methodology. That description reminds me of the "scholarly" articles accepted by professional journals but submitted by pranksters using scholarly words in a random text generator.