S&P Efforts to Predict Mortgage Bonds Potential Losses

Earlier in the week Standard & Poors announced that they will be analyzing and reporting on the potential losses to come on existing mortgage backed bonds and securities. You may not be surprised to hear that the Bond Rating industry and the firms it is composed of have caught some serious heat for doing more then just being inaccurate. S&P as well as all other major bond rating industries have been accused by many to have some faulty business and compensation models.

The problem is pretty straight forward. These firms are paid by issuers of securities to rate securities issued by these same issuers. It does not take rocket science to deduce the potential pitfalls of this model. These speculative potential problems are no longer speculative. This has been the catalyst for some... do-overs announced by all the major rating agencies.

Standard & Poors will post the reports free to all on their website and will sell more in depth analysis for a fee. It will be interesting to see the aggregate results and the influence it will have on the markets. I think an interesting and perhaps an ironic outcome of the rating industry mess is that these up coming forecasts will arguably be biased on the conservative side of things. This of course is only my own speculation but it makes great sense. Just imagine the mess they would be in if they over estimate!

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