So, it looks like the ratings agencies are beginning to do their job.

Of course, this is at absolutely the worst possible time for the economy, because it means that Standard & Poor’s is considering downgrading a large portion of the best quality commercial mortgage backed securities (CMBS):

As much as 90 percent of so-called super senior commercial- mortgage backed bonds sold in 2007 may be affected as the ratings firm changes how it assesses the debt, New York-based S&P said today in a report. About 25 percent of the bonds sold in 2005, and 60 percent of those sold in 2006 may be cut.

(emphasis mine)

This, among other news, is driving rates up on CMBS, though rising rates on treasuries, despite the best efforts of the Fed to hold rates down are a contributing factor.

Basically, people believe that we will be seeing higher interest rates in the near future, which drives rates up, particularly longer term rates, which is why the spread between the 2-year and the 10-year treasury have hit a new record.

It’s why mortgage rates are on the rise, driving down new mortgage applications.

In other banking news, the FDIC’s problem bank list is now more than 300, the highest number in fifteen years.

Meanwhile in energy and currency, oil is up on Saudi statements that the world economy can “handle” $75-$80/bbl oil, and the dollar rose on concerns about bad housing data.