16% of Bonds Misrated Even Using Lenient Standards

[Joanne98]

16%: The share of triple-A rated subprime-mortgage bonds issued in mid-2007 that should never have received that rating, given the information available at the time.

As Congress prepares to rework the business of providing credit ratings, the firms that put their triple-A imprimatur on hundreds of billions of dollars in disastrous investments are raising a familiar refrain: We did the best job we could, given the information we had at the time.

A new paper analyzing the ratings firms’ performance at the peak of the credit boom, though, adds to the evidence that their defense is shaky. It also offers a glimpse of the scale of their contribution to the financial crisis.

The paper focuses on investments backed by subprime mortgage loans. Typically, bankers create these investments by stuffing thousands of mortgages into a little company that issues about a dozen separate bonds. Ratings firms decide what portion of those bonds deserve the coveted triple-A rating.
http://blogs.wsj.com/economics/2010/05/29/number-of-the-week-16-of-bonds-misrated-even-using-lenient-standards/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+wsj%2Feconomics%2Ffeed+%28WSJ.com%3A+Real+Time+Economics+Blog%29