Bloomberg reported this morning that Moody's, S&P Lose Some Credibility With New Credit Derivatives -- some credibility!? How about massive amounts of credibility? Their stocks are down, the markets are down, and these credit rating companies have a lot of explaining to do.

So far, however, there has been nothing but lame excuses. In truth it is silly to ask them how they could give such risky investment instruments their highest ratings, because in truth there are no good answers. They should not have done so.

It reminds me of a comedy skit Bill Cosby did years ago when he wondered out loud why we ask our kids certain questions like, "why did you hit your brother with that baseball bat?" and then quizzed, "Is there an answer that would make you happy? Is there something the child could say that would satisfy you?" Of course not, and the same is true now with the ratings companies.

I have already done my rant about this topic in Subprime = Triple-A ratings? or 'How to Lie with Statistics', but there is always more.

Don't borrow money from Merrill Lynch (NYSE: MER). It may want you to pay it back. Two Bear Stearns (NYSE: BSC) funds learned that lesson recently. BS's High Grade Structured Credit Strategies Enhanced Leverage Fund and High Grade Structured Credit Strategies Fund invested a great deal of their capital in bonds which were secured by sub-prime mortgages. Since that market has not done well as delinquencies and foreclosures have gone up, the funds have been hit by investors who want their money back.

According to The Wall Street Journal [subscription]: "As of March 31, the Enhanced Leverage fund had $638 million in investor capital and at least $6 billion in borrowings." But much of the money was invested based on a recovery in sub-prime mortgages, and that move did not pay off. Merrill wants to seize and liquidate $850 million of the assets in the two funds to get back the money that it had loaned them.

Bear Stearns is in a race against time. Other lenders to the funds, Goldman Sachs (NYSE: GS) and Bank of America (NYSE: BAC), have been attempting a work-out to pay off the loans due them so the investors in the funds will not lose most or even all of their money.

But with Merrill's plan to get its money back, it appears that the funds will be shut down.