It's Deja Vu All Over Again

By Cydney Posner

AAA-rated mortgage-backed junk bonds –ring a bell anyone? Weren't those the type of securities that triggered the 2008 financial crisis? Unbelievable as it may sound, Bloomberg and TalkingPointsMemo report that S&P is set to award AAA status to a group of mortgage-backed junk bonds. That action comes not too long after S&P pulled the AAA rating of US sovereign debt. According to Bloomberg, "'S&P is poised to provide AAA grades to 59 percent of Springleaf Mortgage Loan Trust 2011-1, a set of bonds tied to $497 million lent to homeowners with below-average credit scores and almost no equity in their properties.'" According to 2010 report by the Senate Permanent Subcommittee on Investigations, "In the end, over 90% of the AAA ratings given to mortgage-backed securities in 2006 and 2007 were downgraded to junk status…."

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