[Notary Sojac]

The most proximate cause of the housing bubble and bust was the rating agencies giving a thumbs up to all that mortgage-backed fecal matter on so many balance sheets.

They were so wrong, in such a big way, I can't imagine how they can possibly retain any credibility.

By comparison, here's the Zillow chart of the last house I owned. The dollar sign shows when I sold it.

I am no financial genius. Not by a long shot. But even I could smell the rot in the housing market back when Moody's was giving Angelo Mozilo a big "AAA" (which Angelo paid for, I'm sure).

So whether or not they keep rating bond issues tells me absolutely nothing about whether those bonds are investment grade.

[socialism_stinX]

Well the ratings agencies certainly made big mistakes in rating mortgage-backed securities. The biggest reason for that mistake was probably just that the US had never had a major nationwide decline in housing prices since the Great Depression. So many housing analysts and the bond rating agencies thought that was extremely unlikely and underestimated the risk of a decline in housing prices. They knew that sub-prime borrowers were not good credit risks but they incorrectly assumed that lenders could get their loans repaid through foreclosure if necessary.

The ratings agencies have done much better at rating corporate bonds and I find them quite useful when evaluating corporate bonds. But I still take a look at the income statement and balance sheet of companies before I buy their bonds just to make sure they have enough operating income to cover their interest payments even in a severe recession.

[socialism_stinX]

Another possible cause for all the disastrous sub-prime lending could be bad data about mortgage default rates from Fannie and Freddie. I suspect that bad data from those companies probably caused the mortgage lenders and the ratings agencies to underestimate the risk of sub-prime mortgage lending.