Fed Taking "AAA" as collateral

With the fed giving away dollars to anyone oops any bank that needs it, you might have missed this story. Moody's, S&P defer cuts on AAA subprime securities.

None of the 80 AAA securities in ABX indexes that track subprime bonds meet the criteria S&P had even before it toughened ratings standards in February, according to data compiled by Bloomberg. A bond sold by Deutsche Bank AG in May 2006 is AAA at both companies even though 43 percent of the underlying mortgages are delinquent.

That's right AAA with 43% of mortgages delinquent. But this should not come as surprise to anyone who has been following the mono insurers. We've seen this too often.

Sticking to the rules would strip at least $120 billion in bonds of their AAA status, extending the pain of a mortgage crisis that's triggered $188 billion in writedowns for the world's largest financial firms. AAA debt fell as low as 61 cents on the dollar after record home foreclosures and a decline to AA may push the value of the debt to 26 cents, according to Credit Suisse Group.

``The fact that they've kept those ratings where they are is laughable,'' said Kyle Bass, chief executive officer of Hayman Capital Partners, a Dallas-based hedge fund that amade $500 million last year betting lower-rated subprime-mortgage bonds would decline in value. ``Downgrades of AAA and AA bonds are imminent, and they're going to be significant.''

The rating cuts would make the value of debt to 26 cents! Add the fed news and this together and you get the picture. It looks like the fed is working with the agencies to not downgrade them so that the banks can use them as collateral. 26 cents worth of collateral for one dollar. This whole situation would be funny if it was not tax payers dollars.

S&P and Moody's, both based in New York, failed to anticipate the record foreclosures on home loans and slumping house prices. New foreclosures jumped to 0.83 percent of all home loans in the fourth quarter, up from 0.54 percent a year earlier, the Mortgage Bankers Association said March 6. Home prices fell 9 percent, the biggest decline in 20 years of record-keeping, according to the S&P/Case-Shiller home-price index.

Failed to anticipate?  This guys are a joke.  They not only failed to anticipate, but they are still failing to see them.  Should they be rating anything?

``If the 800-pound gorilla moves, it's going to crush someone, so it's not going to want to move,'' Partnoy said. ``They know they will trigger a price collapse. They are understandably reluctant.''

Let's not sell so we can have the mark-to-model prices. Why even bother getting the price if it's 20 cents on the dollar!