But Can't We Just Keep Playing "Let's Pretend"? Our Revenues Depend On It!

Denninger:

Amazing stuff here...

The new law (financial reform) will make ratings firms liable for the quality of their ratings decisions, effective immediately. The companies say that, until they get a better understanding of their legal exposure, they are refusing to let bond issuers use their ratings.

So let me see if I get this right.

The Ratings Agencies get "privileged" access to deal information. Individual loan data, aggregates, all sorts of stuff that is not released to the potential buyers of a particular issue.

They then issue a rating based on both the known-to-all and the known-to-only-them data.

But they refuse to take responsibility for that rating.

Well now isn't that special. The issuers, of course, are unhappy:

Several companies are shelving their bond offerings "indefinitely," according to Tom Deutsch, executive director of the American Securitization Forum, which represents the market for bonds backed by assets such as auto loans and credit cards. He said he knew of three offerings scheduled for coming weeks that are now on hold.

So these issues are unmarketable without a rating, but the rating has no meaning because the agencies won't stand behind it - particularly, if it is found that they were negligent in some fashion down the road.

If you think this is the worst bit of circular logic you've heard in a while, you're not alone. A thing that is only marketable with a rating is obviously only marketable if the rating actually means something.

If nobody will stand behind their "rating" then in fact there is no rating at all and the issue is unmarketable in the first instance.

I offer my congratulations to the ratings agencies for finally bringing this little inconvenient fact into full public view, and defining themselves not as "ratings agencies" but rather as advertising departments for the major banks, puffery and all.

May they rest in peace.