S&P Stops Rating Bonds That Haven't Been Issued

I missed this on Thursday:

Standard & Poor's will stop rating new bonds composed of U.S. second mortgages, saying it's too hard to assess the debt while the housing slump continues...

The unit of McGraw-Hill Cos. (MHP) said today that it will continue to assess outstanding securities by looking at delinquency and default levels.

This raises more questions than it answers. Firstly, how many bonds does this affect? Remember it only applies to new bonds composed of closed-end second liens - S&P is continuing to rate bonds comprising Helocs. Are there any such new bonds to rate?

And secondly, isn't this an admission that the mechanism for rating new bonds is broken, and has been for a while? Given that mechanism is based on a now-discredited model, and given that the wave of defaults on second-lien mortgages is very recent and largely unprecedented, how on earth can S&P consider its existing ratings on outstanding second-lien-backed bonds to be remotely reliable? If there's no way of knowing how creditworthy a new second-lien-backed bond is, there's no way of knowing how creditworthy an old one is, either.

Finally, if and when the market in these bonds ever reappears, what are the chances that S&P will start rating it again? I'd wager they're pretty high. It's all well and good proclaiming that you won't eat cake so long as no one's serving it to you; the real test is when you go to the birthday party and everybody else is stuffing their face.