First, read this piece at Wall Street Journal
Insurance Rule Adds Up to $5 Billion – By LESLIE SCISM – … Life insurers will need to set aside about $8.75 billion to back up souring home-mortgage bonds based on preliminary analysis provided to regulators by Pacific Investment Management Co., the officials said. The figure is far less than the $14.5 billion requirement the companies would have faced if regulators still relied on ratings, rather than on Pimco. … – Wall Street Journal
thoughts from Nom De Plumber …
Insurers complain that the rating agencies were too loose, deeming too many credit-risky securities to be “AAA”.
Insurers complain that the rating agencies were too stringent, downgrading these same securities and triggering higher capital charges.
Same insurers, same rating agencies, and same securities…..but conflicting, simultaneous accusations. Hmmmm…….
Regulator to Rating Agency, Episode 1: “You were too lenient in your stress projections, leading investors to own securities with high principal losses. You must repent.”
Regulator to Rating Agency, Episode 2: “You were too stringent in your stress projections, leading investors to own securities with high capital charges. You must repent.”
Both episodes of this tragicomedy share identical regulators, rating agencies, stress projections, investors, and securities. PIMCO has been hired as Deux Ex Machina, to define a common rating-agency repentance for both. This is only the intermission; stay seated.
Nom De Plumber is a Nom De Plume