Thursday, December 20, 2007



So enough of wasting time on dissecting the assets and liabilities and capital of individual monoliners; their business model is conceptually flawed in the first place; and their actual business practices have been even more flawed as they have now insured for years toxic RMBS, CDOs, and CDOs of CDOs. The wariness of rating agencies to downgrade the monoliners is understandable: such a downgrade will imply an instant death sentence for any monoliner that is downgraded; it will lead to loss of business for the rating agencies themselves; and it will trigger massive losses on muni bonds.

But the current charade of pretending that the monoliners are under review to give them time to raise more capital to avoid such a downgrade is another case of rating agencies supporting a rotten business model. The actual behavior of such monoliners has proven that they are not transparent, that they hold or insure a mass of skeletons and toxic waste securities and they have been dishonest in hiding from investors the toxic waste that they hold and insure. So it is time to stop this charade of rating forbearance and admit that the emperor has no clothes: a business model that cannot survive without an AAA rating is conceptually a business model that cannot deserve under any circumstance an AAA rating; period! Arguing otherwise is believing in voodoo black magic.

This is right. The whole system is screwed up.