Agencies moving to downgrade bonds and CDOs

Some have argued that the ratings agencies had a lot to do with the boom in subprime-asset-backed securities and the CDOs in which they are included. Now, it seems they are taking a different tack. They have reevaluated their methods of analyzing the risk of default. The result: Moody's lowered ratings on 399 residential mortgage-backed securities issued last year. It may downgrade 32 more. All of the bonds that were issued in 2006. Recall its warning about private equity activity. Standard & Poor's Ratings Service says it might cut ratings on 612 mortgage-backed issues. This will certainly have a ripple effect and could result in some hedge fund selling. It might be smart for pensions and other institutions to take action if the ratings no longer meet their criteria. In addition, the FDIC is taking a look at the subprime-related issues. So the bad-news drumbeat continues, though the markets are not in panic mode.

For more:
- here's an AP update