Subscribe to this blog's feedLots of attention, of course, on the FT's scoop about Moody's credit rating models.
Moody’s awarded incorrect triple-A ratings to billions of dollars worth of a type of complex debt product due to a bug in its computer models, a Financial Times investigation has discovered.Internal Moody’s documents seen by the FT show that some senior staff within the credit agency knew early in 2007 that products rated the previous year had received top-notch triple A ratings and that, after a computer coding error was corrected, their ratings should have been up to four notches lower.
Lots more detail here, at the FT blog.
Felix Salmon highlights one point:
* The committee did discuss “methodological changes” which were implemented simultaneously with the code correction.
* Documents show that three methodological changes were proposed, but only two were adopted. The third was ditched because it “did not help the rating.”
And says it's "clear evidence of Moody's trying to maximize the rating it was giving to CPDOs".
Tanta at Calculated Risk picks up another point:
The world’s other major credit agency, Standard and Poor’s, was the first to award triple A status to CPDOs but many investors require ratings from two agencies before they invest so the Moody’s involvement supplied that crucial second rating.S&P stood by its ratings, saying: “Our model for rating CPDOs was developed independently and, like our other ratings models, was made widely available to the market. We continue to closely monitor the performance of these securities in light of the extreme volatility in CDS prices and may make further adjustments to our assumptions and rating opinions if we think that is appropriate.”
It sounds, Tanta comments, as though Moody's was deliberately skewing its model to make it match S&P's ratings - which S&P insists are still correct!
