Wrangling over a plan to bail out troubled bond insurers is inviting a downgrade by ratings agencies, according to source familiar with the discussions within one of the agencies. New York state insurance regulators have asked the agencies to postpone a downgrade while they work out a plan with Wall Street banks but a flurry of news stories have suggested that the participants in this discussion have not agreed on a plan and may be hesitant to fund a bailout.
"The story in the Journal this morning may be the last straw. It shows that there is no plan, and it sounds like not much progress has been made," the source said.
This morning the Wall Street Journal reported that as many of three plans are being discussed. It added that there was no consensus that a plan was even needed or how it would be paid for.
The ratings agencies are concerned about their credibility. They have come under fire recently for failing to spot troubles in the mortgage market and its effect on many derivatives. They are now loathe to be seen holding back at the request of regulators. Yesterday Charlie Gasparino reported on CNBC that a Moody's spokesman had told him "we don't forbear on our ratings" based on talks with government officials.
Also contributing to the likelihood of a downgrade this week has been the lack of involvement by the Treasury Department or the Federal Reserve. New York State insurance regulators do not have the prestige or persuasiveness that higher level involvement would, according to the source.
A downgrade could come this week, perhaps as early as today, the source tells DealBreaker.
Good Plan, but Who Will Pay? [Wall Street Journal]
Posted by anon, Jan 30, 2008 11:16AM
rescuing ponzis to support the dollar. i love it.
simple fact is, we need these companies saved, because everyone was playing the same game. the only delay for the infusion is that the insurers are holding up ok - this week.