July 27, 2007

And then investors lost trust in the bond ratings agencies, and then the real fireworks started

How did Bear Stearns get burned so bad? I mean, AAA paper should be gold right?

Wrong.

The two ratings agencies are now seen as incompetent and trustworthy as Bush and Cheney. They were rating subprime mortgage tranches far higher than they ever should have been. And Bear Stearns, pension funds, hedge funds and bond investors got their fingers burned.

Here's an interesting take from bond guru Bill Gross on the ratings agencies, the coming crash in the market, and also how high-yield (junk) bond rates are now soaring, since inventors no longer believe the crap coming out of Moodys and S&P.


Gross says private-equity firms and hedge funds were able to borrow money cheaply until about six weeks ago. "But investors no longer trust the rating services to adequately and fairly rate the bonds they're buying," Gross said. "Basically, bond buyers have become frozen in place."

Bond investors have been willing to let speculators take advantage of their inactivity to buy more assets and pile up returns, he added. And that's probably even more the case with investors in riskier corporate issues, Gross says.

He added: "What's going on in the past few weeks should be registering with bond investors as a substantial change in climate."

7 comments:

Anonymous said...

Fitch, Moody's and S&P

They're all as corrupt as the appraisers

Bond_manager said...

We are looking at way to spin this, to pass the loses to greater fools.

Anonymous said...

Change in climate?!?

More like a magnitude 8.0 earthquake!

Anonymous said...

oh bullcrap...on cnbc the new catch phrase is.......the markets are going through a return to normalcy.....yeppers.its a return to normalcy boys.....don't worry about it....

Anonymous said...

we are near the bottom tho

POTcallsKETTLEblack said...

"Gross says private-equity firms and hedge funds were able to borrow money cheaply until about six weeks ago. "But investors no longer trust the rating services to adequately and fairly rate the bonds they're buying," Gross said. "Basically, bond buyers have become frozen in place."
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Snort. Now the pot is calling the kettle black. Bill Gross and PIMCO weren't doing to good the other day when I looked in on my pension fund.

Anonymous said...

thank you karl rove