Rating Agencies Put Nail in Coffin of AIG, WaMu

What does every 5% one-day drop in the Dow really need to give it a big boost?  How about an after-hours downgrade by the rating agencies of the two financial institutions currently perched on the bankruptcy precipice.  The folks at S&P were apparently the last people in America to figure out that WaMu's credit was below-average as they finally downgraded the stock to "junk".  The downgrade of WaMu was a foregone conclusion (it's a $2 stock, for the love of God) and shouldn't have any immediate affect on the bank other than merely stating the obvious.  It was the other after-hours downgrade that further torched financial markets.  After a brutal day, during which AIG's stock was down another 51% and the company was forced to go begging for cash from the state of New York, to the Fed, to what remains of the investment banking community, AIG was slapped with the final indignity: a downgrade of its credit ratings by S&P, Moody's and Fitch.  The downgrade will force the insurer to post more collateral against its derivatives portfolio, thus creating serious liquidity problems.  It's very interesting that the ratings agencies just figured out TODAY that AIG was carrying a tad bit too much risk in its derivatives portfolio relative to its capital base.  In fact, I would label this revelation as inconvenient and extremely unproductive given that the capital markets are paralyzed with fear and are unwilling to lend to yet another financial institution trapped in a death spiral.  The Fed has asked Goldman and JPMorgan to make $70 to $75 billion in loans available to AIG.  Unnamed sources claimed they overheard the investment banks exclaim "Say What?" in response to the request.  The Fed has also hired Morgan Stanley to examine alternatives for the beleaguered insurer.  It is rumored that Morgan Stanley took the Fannie and Freddie bailout plan they recently crafted for the Treasury, scratched out their names, replaced it with AIG, and left the memo on Paulson and Bernanke's desk.  

SEC Chairman Chris Cox has been remarkably quiet during the recent turmoil.  Perhaps he has finally discovered the joys of shorting stocks that go down 99% within weeks and is reluctant to impose restrictions.  If Mr. Cox wanted to make himself useful (which is questionable), he should've put a temporary freeze on rating agency downgrades rather than going after short sellers.  The agencies are too late to do anyone any good.  They are merely inciting further panic.  Note the 6% plunge in the Nikkei and the drop in the S&P futures after hours.  Prepare yourselves for another volatile day.