Top rated fiction

What does AAA mean? Almost nothing it seems. Hot on the heals of the agencies' failure to downgrade MBIA and Ambac there is a lovely interactive graph from Bloomberg showing the collateral support for the AAA bonds in the ABX: Bloomberg concludes only 6 of the 80 deserve the rating.

Barney Frank has noticed that the disconnection of ratings from default probability is an issue for municipalities, who have been given a rating far below their PD, then charged for insuring their debt on that basis. And he wants to see some changes. According to Bloomberg:

Barney Frank gave ratings companies a month to fix ``ridiculous'' standards that they apply to local government debt, as his House committee opened a hearing today on how the firms evaluate municipal bonds.

``I am going to say to the rating agencies and to the insurers: they have about a month to fix this,'' Frank, the Massachusetts Democrat who chairs the House Financial Services Committee, told reporters in Washington yesterday. ``We're going to tell them they have to straighten it out.''

I think I like this guy...

Let's look at the prospects for the monolines then. Barney is going to ensure the good quality states and other munis are rated AAA. A lot of muni insurance business goes away because of that. Buffett will eat much of the rest. And the structured finance market has disappeared too. Hmmm, business model, what business model?