Michael Callen, Ambac CEO, was on a roundtable discussion today on CNBC asking that a moratorium be placed on the rating agencies until everything regarding the bailout is worked out. He argued that if the rating agencies cut the ratings of the 100 financial institutions under review for a downgrade, the results would be disastrous.
I have to say, I agree with Callen on this point. Wouldn't it be common sense for the rating agencies to wait to see what is going to happen with the bailout? Even if there wasn't a moratorium, they themselves should wait before making any quick decisions. AIGs problems were pretty much pushed to the edge because of the downgrades they received. These downgrades increased the amount of capital they needed to have and forced them into accepting the $85 billion loan. And we all saw what effect the AIG incident had on the market. Why would Moody's or any other rating agency risk harming the market even further at a time when all the politcal leaders and economists of the world are trying to implement a plan to help stabilize it. Wouldn't it look silly to downgrade a financial institution and then the government steps in and buys their bad assets? They would then have a low rating for nothing and would be in line for an upgrade. I just think theres no harm in waiting to downgrade institutions and theres alot of pain to be felt if they do. To me, that alone is a good enough reason to wait.