Why do we care what S &P thinks?

PLC1

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The same people who rated mortgage backed securities as AAA, now want to downgrade treasury bills.

Here's what was happening to the former back in '09:

We wanted to show how these complex securities really worked and how Moody's and S&P, the rating agencies, aided and abetted the process by giving two-thirds of an issue backed by ultra-risky second mortgages the same safety rating they gave to U.S. Treasury securities.

We thought this was a cautionary tale -- but it's turned into a horror story. All the tranches of this issue, GSAMP-2006 S3, that were originally rated below AAA have defaulted. Two of the three original AAA -rated tranches (French for "slices") are facing losses of about 90%, and even the "super senior," safer-than-mere-AAA slice is facing losses of 25%. How could this happen? And what lessons can we take away from it?

If they didn't know what they were talking about then, what makes us think that they do now?
 
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