It turns out that Moody’s (MCO) may be more than incompetent. After missing most of the risks in subprime paper and keeping “Aaa” ratings on the municipal bond ratings agencies for too long, the firm also had computer problems which caused some debt to be rated too high.
According to the FT, “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.” Moody’s did not seem to want to come clean about the matter. Some members of Moody’s management appear to have known about the trouble for some time.
Errors that could cost a company money, or its reputation, are often followed by mendacious behavior and Moody’s has fallen right into that pattern. The matter of liability is now squarely on the table. When Moody’s missed on its analysis of the subprime market, it could at least conclude that its analyst were dump as a box of rocks.
Computer errors which Moody’s knew about are another matter.
The Inquisition over all the hundreds of billions of dollars lost in the credit meltdown may go on for years. Just sorting out how the subprime paper actually worked and why it failed will take a building filled with math PhDs scholars.
But, what Moody’s did seems to be more clear-cut. A dodge is a dodge, no matter what name it is given.
Douglas A. McIntyre