On the heels of an S&P report affirming MBIA's AAA insurer rating, and giving a similar stamp of approval to Ambac, HW's received more than a few emails questioning the stress test used to give both monolines a top grade. One reader noted in an email to us:
Net net, the model doesn't seem to indicate any increase in correlations across portfolios which was the CDO and CDO2 structure's weakness. I think they are fudging by releasing more data, but not really acknowledging the structural changes that have gone on in these markets. It feels like a CYA move to disclose a little more but use the same approach with a little more stress on the model. Most of the AAA stuff was indicated by MBIA as having 10-15% OC. The latest document showed them having 15% most likely through CDS. The current market could blow through that in sub-prime and everything I have heard about ALT-A is that it is following close behind. Think of subprime blow ups at 30% with 60% recovery put you at a 12% loss unstressed. It isn't too tough to imagine a little extra hitting subprime and ALT-A. The OC really isn't going to be enough.
That opinion contrasts with the trader that runs the Accrued Interest blog, who said he thought the stress test was just that; a highly-stressful scenario.