The Ratings Agencies Do Us All a Disservice

How can it be a shocker that MGIC Investments (MTG - commentary - Cramer's Take) got a downgrade from Moody's yesterday? This is one of those ongoing travesty situations from the agencies, just like how MBIA (MBI - commentary - Cramer's Take) was AA by S&P until just now, when it was cut to BBB+.

I don't know many people who expect MGIC or MBIA or PMI (PMI - commentary - Cramer's Take) or Radian (RDN - commentary - Cramer's Take) to pay off on all of their obligations. What galls me is that the companies are constantly putting out these "I don't know what you are talking about" statements. In fact, when you talk with those who are insured by these folks, you always get a wink and a nod, if not an outright statement, that they know these companies can't pay. MBIA will most likely do the same thing today when the CEO comes on "Power Lunch." Their split today is meant to protect muni bond holders; I will believe it if they start paying on muni failures.

So what the heck was MGIC doing with an A1 rating? A1? I mean, to me that means, "You should be banking on these guys." What's the point of taking it to Ba2 and not right to C? There is no crime to it; given the defaults, there is no way in heck that it is possible for these guys to pay off on all of this insurance. That's OK. I get that. This was a tsunami and no one was insured properly on it. And what was the point of having MBIA at AA by S&P? That's ludicrous. No one thought it would pay off -- no one. How can it have anything like that? All it does is entice people to take more insurance and make the bonds covered earlier have even more risk? This could end up being a Madoff situation, for heaven's sake.

What drives me crazy is why the agencies don't just suspend the darned ratings. If you can be as wrong as they have been, what's the point? Or, more important, I think the only company that looks stupid after this MGIC downgrade is Moody's itself. The only company that looks stupid after the MBIA ratings change is S&P. Do you know that one year ago I urged Eric Dinallo, the New York superintendent of insurance, to take the action he did today to preserve the muni bond holders? One year ago? What a waste of time and energy ... by me!

ALL JIM CRAMER BLOG ENTRIES | POST A COMMENT | READ COMMENTS  

---

Jim Cramer is co-founder and chairman of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. To see his personal portfolio and find out what trades Cramer will make before he makes them, sign up for Action Alerts PLUS. Watch Cramer on "Mad Money" weeknights on CNBC. To order Cramer's newest book -- "Jim Cramer's Stay Mad for Life: Get Rich, Stay Rich (Make Your Kids Even Richer)," click here. Click here to order "Mad Money: Watch TV, Get Rich," click here to order "Real Money: Sane Investing in an Insane World," click here to get "You Got Screwed!" and click here for Cramer's autobiography, "Confessions of a Street Addict." While he cannot provide personalized investment advice or recommendations, he appreciates your feedback and invites you to send comments by clicking here.

TheStreet.com has a revenue-sharing relationship with Amazon.com under which it receives a portion of the revenue from Amazon.com purchases by customers directed there from TheStreet.com.