I took some amusement at this pronouncement:
Talk about grade inflation! An Aa rating represents 100% loss of one's investment!
Moody's said today that losses on subprime loan collateral are assumed to be at least 14.8 percent, more than double its forecast of last April.
Expected losses are a primary component for Moody's ratings models and affect the available credit protection for the debt. For instance, losses at 15 percent would mean that all bonds rated Aa and below would be worthless in a typical mortgage collateral pool, according to Deutsche Bank AG.
Hmmnnnn... and precisely WHAT is the differentiation between Aa, A, Baa, Ba, B, etc., when ALL will experience 100% losses! Perhaps those holding lower rated investment certificates will be humiliated, criticized, insulted and tortured before losing ALL of their money!
BY THE WAY, WHILE MOODY'S LOSS FORECAST FOR SUBPRIME MAY NOW BE PROJECTED TO BE 14.8%, WHAT WALL STREET SEEMS TO HAVE FORGOTTEN IS THAT ALL EMPIRICAL EVIDENCE SHOWS THAT NET BORROWER EQUITY IS THE SINGLE MOST IMPORTANT PREDICTOR OF BOTH FORECLOSURE LOSS FREQUENCY AND FORECLOSURE LOSS SEVERITY. WHAT THAT MEANS IS THAT WHEN PROPERTY VALUES BEGIN TO FALL, "PRIME" MORTGAGES BEGIN TO DEFAULT, AS FALLING PRICES CAUSE NEGATIVE EQUITY, PARTICULARLY FOR HIGH LTV LOANS. WHEN THE PRIME MORTGAGE DEFAULTS START KICKING IN LATER THIS YEAR AND IN 2009, THINGS WILL GET VERY BLOODY. THERE WILL BE BANK FAILURES AND DOWNWARD PRESSURE ON REAL ESTATE PRICES WILL BECOME PARTICULARLY ACUTE.