Yves Smith grows furious about the rating agencies:

Now the New York Times piece, on page one, is no doubt intended for a broad audience, so it explains (without giving comparative default rates, which would have been useful), that rating agencies grade muni bonds more harshly than corporates:

At every rating, municipal bonds default less often than similarly rated corporate bonds, according to Moody’s. In fact, since 1970, A-rated municipal bonds have defaulted far less frequently than corporate bonds with top triple-A ratings. Furthermore, when municipalities do default, investors usually receive some — or even all — of their money back, unlike in most corporate bankruptcies..... Moody’s estimates that more than half of the market would be rated triple A or double A using the corporate scale. Triple-A securities are considered nearly as safe as Treasury bonds issued by the federal government.

However, the piece notes rather blandly the central conflict of interest: that rating agencies have good reason to have established and perpetuated this double standard...And the rating agencies are resorting to bald-face lies to defend their practices...it's a meal ticket. And some investors might like it because it creates market inefficiencies.

And reflect on the fact that the monolines' business, before they got embroiled in insuring structured products (whence all their current problems) was to earn a fee in exchange for conferring a AAA credit rating on products which, in many cases, and had the rating agencies been doing their jobs properly, would have had one anyway. Essentially, rent-seeking.