D'Vari and Ali on Credit Ratings, Bailouts and Securitization

Please check out new insights from my SovereigNet affiliates Ron D’Vari and Asim Ali at NewOak. From Ron:

Moody’s downgraded four of the largest banks a notch after reviewing them in light of the new framework for resolving failed banks in an orderly fashion. Previously they were bailed out with taxpayers money.

Not having the ‘too-big-to-fail’ protection from the Federal Reserve or the U.S. Treasury Department appears at first to make them riskier. However that assumes everything else is equal. Actually the new regulations emphasis on disciplined risk management will reducing equity returns, yet should lead to a more bond-friendly financial institutions.

Read the whole thing here.

And from Asim:

The much-misunderstood term in structured finance – securitization – is back again, and with it has refocused the spotlight on the uncertain role of credit rating agencies.

With the collapse of the mortgage finance sector in 2008 and the global financial tumult that followed, the word ”securitization” crept into everyday speech along with other technical terms such as credit default swaps, collateralized debt obligations, collateralized loan obligations, asset-backed securities (ABS), mortgage-backed securities, etc. An important variable in the securitization markets was and remains the role and criteria for credit rating agencies (CRAs) in rating of ABS.

The whole thing can be read here as well.