This article starts to shed more light on why the rating agencies may be taking so long to downgrade the $000’s of B’s in CDO’s downstream from the subprime explosions. Because their original ratings are based on expectations of reality, it takes a change in reality (i.e. a home actually being sold through foreclosure for less than the value of the bond) for them to admit defeat. Otherwise any downgrade is just a further specualation on the future…

A weak and unconvincing argument (aren’t all ratings just expectations?), but at least there is some “logic” to it. Problem is this just delays the inevitable.

S&P, Moody’s Hide Rising Risk on $200 Billion of Mortgage Bonds

The one agency that seems to have acted: Fitch Ratings Downgrades 5 & Places 8 Countrywide ABS 2006-SPS1 Classes on Rating Watch Negative was also recently eliminated as a rating source for the Fed. Go figure.