The Declarer (Floyd McWilliams' Blog)

Wednesday, July 28, 2010

The mortgage meltdown occurred, in large part, because the federal government encouraged the rating of risky loans as though they were solid investments.

Now as a result of new legislation, ratings agencies are no longer exaggerating the solidity of debt. That is because they are not issuing any ratings at all:

Ford Motor Co.’s financing arm pulled plans to issue new debt, the first casualty of a bond market thrown into turmoil by the financial overhaul signed into law Wednesday.

Market participants said the auto maker pulled a recent deal, backed by packages of auto loans, because it was unable to use credit ratings in its offering documents, a legal requirement for such sales. The company declined to comment.

The nation’s dominant ratings firms have in recent days refused to allow their ratings to be used in bond registration statements. The firms, including Moody’s Investors Service, Standard & Poor’s and Fitch Ratings, fear they will be exposed to new liability created by the Dodd-Frank law.





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