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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: JHP who wrote (88221)	1/10/2001 10:02:41 PM
From: Knighty Tin	Respond to of 132070

JHP, this is an old scameroo, similar to what the conglomerates used to do in equities. The junk is no longer junk because it is "diversified." And "managed." A rating agency may think that every bond in the portfolio is in danger of default, but, since most of them will not default, the bond fund itself is a high credit risk. Nutso. Just as in the 1960s and 1970s, everyone knew that LTV was worth 70 times eps. And Jones and Laughlin Steel was worth 8 times eps. So, when LTV, the mouse, swallowd JNL, the elephant, the entire thing was suddenly worth 70 times eps. Except, or course, a steel co. is still a steel co. and was not worth that price, which everyone eventually found out. I have seen this sort of rating for years in the insurance industry. Insurance cos. issue policies with the highest ratings while the assets that back them are trash. It works until it stops working, then it gets ugly fast, as in the cases of Equity Funding, Executive Life and Baldwin United. Fortunately, those are not huge cos. so these shoddy practices haven't killed the financial system. Yet.