Imagine a movie hall where it has just caught fire, and the people are trying to rush out from every conceivable door and window. At that point, the fire safety officer comes and yells in top of his voice, that he is declaring the movie hall as unsafe from fire. That's how the rating agencies are working now. Fresh from their failure on mortgage backed bonds, and trying to build their reputation back, they are going overboard in the other direction now. In the run up to 2008, the more you rate high the more credibility it brings to you. It is quite looking convincing to me that the rating agencies are not at all forward looking but they are the followers of the street. The mortgage bonds were darling of the street at one time so it would be foolish to say that they are of junk grade. Let's give them the highest grading, and if everyone in the street is rating them high then why should not we.
The wheel has turned completely. Now the rating agencies are running the race in the other direction. Degrading countries and banks one after another and trying to grab more and more headlines. If the competing agency downgrades one country, I will downgrade two. That too after the fact that in the street everyone knows about if for some time now. The rating agencies would have been more impressive if they would have downgraded the things 8-9 months before and actually would have started upgrading the banks and institutions and sovereigns for the effort they are trying to put now to come back.
In fact, I think an important lesson can be that buy when the rating agencies start downgrades and sell when the rating agencies will start upgrading. They are so buys in themselves that they act only when the street is reached in pinnacle in terms of celebrations or gloom.