'Highly Rated'? No Such Thing

Promise me, market writers and pundits, that you ban the following two words from appearing with each other: "highly" and "rated." How many times have you seen those two words next to a bank's portfolio?

How many times? A million? Two million? Ever since this crisis started we have been treated to misstatement after misstatement about the safety and surety of mortgage portfolios because they were highly rated.

The artificiality of all of this is that we have also been led to believe that highly rated covers not only the now ignominious determinations from the "ratings" agencies -- how can you not put them in quotes given their total uselessness, but also the "insurance" of mortgage companies like MGIC (MTG - commentary - Cramer's Take) and PMI Group (PMI - commentary - Cramer's Take). These initialed companies -- how much do I want to call them jokes? -- are supposed to backstop everything just in case the ratings agencies were too optimistic.

Of course what we are seeing now is that McGraw Hill's (MHP - commentary - Cramer's Take) S&P and Moody's (MCO - commentary - Cramer's Take) simply just said most pieces of mortgage paper were highly rated because housing was going up. Nobody took into account housing declining if employment held up. It didn't matter though, because if the rate homeowner started defaulting the insurance would cover it.

Now we see all of that unwinding. Because it is all happening in slow motion -- although you wouldn't know if you looked at the insurance company charts which are amazingly bad -- there will be no quick resolution. There can be no disagreement, other than at the dreamy management level of these companies, that more capital is needed.

But how much more? That's another big problem. It's not knowable. We don't know where all of these defaulting mortgages are. We can tell from the vague references in the bank conference calls that they don't know either. They are still trying to figure out what happens to the first mortgages when the home equity loans go belly-up.

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At the time of publication, Cramer had no positions in stocks mentioned.

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