Another Link in the Chain

This one could easily go by unnoticed, but has significant economic implications.

Moody's cut Security Capital Assurance's financial-strength rating to "A3" from "AAA." The insurer's financial strength is now "high quality," whereas it was previously "maximum safety."

This means the bonds insured by SCA will loose value because insured debt is only as safe as the reliability of its insurer.

Moody's said in order to cover the claims the company is likely to face, Security Capital needs $6 billion in "claims-paying resources," or cash it can access. The company only has access to $3.6 billion, Moody's said. Security Capital insures $150 billion in debt.

This is one more link in the unraveling chain, triggered by past irrational exuberance about, that is crazy speculation in, real estate.

Sources:

CNNMoney.ComMoody's Cuts SCA's Rating:
Moody's Slashes Rating on Security Capital Assurance, Threatening $150B in Debt, February 7, 2008.