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The world has enough actual issues without tossing in a few contrived ones.

The fact that the ratings agencies will actually do this also testifies negatively to their state of knowledge while there is no threat of solvency, there is a threat of downgrades and secs getting cheaper by a few basis points, as happened in Japan.

And, worse, as the government has the same fears as the ratings agencies that there is risk of counter agenda policy decisions for the wrong reasons.


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4 Responses

  1. Warren, what happens if the agencies need to be bailed out. Would the Fed simply step into the equity position of the GSE’s and everything continues as normal or are there brader implications for the mortgage and capital markets?

  2. lots of possibilities.

    for example, in japan the govt bot preferred stock that had to be repaid before common stock got anything.

    in any case i expect the agencies to continue to be open for business regarding making mtgs, so agg demand shouldn’t be adversely affected.

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