Last week Moody’s placed MBIA under review for its AAA rating after observing heavy losses in the subprime crisis. This is for the first time in decades that MBIA is under threat to lose its AAA rating. Its website says “During the week of January 14, 2008, Moody's placed AMBAC and MBIA's financial strength ratings on watch for possible downgrade.” And this message is on top of the website so that every visitor to the website see this very clearly. A very good, unbiased practice by an professional service like Moody’s.
It was also reported in Bloomberg that S&P was considering this same action for the MBIA rating and it was reviewing Bond Insurer as the losses mounted. Finally, New is out that Ambac financial group has lost its AAA rating. It is pointed out in the news that there will be more selling by the pension and mutual funds in these bonds because they are allowed to invest in AA rating bonds. When they will sell their bonds, it may trigger a series of sales in the market because prices of the bonds will start coming down and investors will be under fear of losing more money. It will have its effect on the equity market as well and the morale will be low there too. If heavy selling picks up in the equity market then the whole US economy will be under pressure and government might need to take some serious steps to stop losses. President has already announce a kick of package for the common user and now it may have to released with urgency.
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