Moody's Rating Service - It was a software Glitch

[Riick]

Moody's Begins Probe on Report Bug Caused Aaa Grades

As I've been forecasting for years, when the Doo-Doo hits the fan,
someone is going to point to STUPID COMPUTER or STUPID SOFTWARE error.

Here it is in livid color:

LINK


We're staffed with mathematicians and rocket scientists,
but we were FOOLED by our software which told us that
loans to people who didn't earn enough to pay their mortgages
were Just As Good as AAA Bonds

 

[Randolph Kinney]

It does call into question every rating they made on every product.

 

[Lloyd Bonafide]

http://calculatedrisk.blogspot.com/2008/05/which-ratings-model-is-broken.html

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.

That's bad. That's really bad. But then there are these two paragraphs at the end of the article:

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.”

The implication here, that Moody's jiggered its model to arrive at the same ratings S&P had already arrived at--presumably to keep the "second opinion" business--is ugly. However, the implication that Moody's had to fudge the numbers in order to come up with AAA on these deals but S&P came up with AAA with a "correct" model is something I for one am having a hard time with.

More evidence that the ratings agencies, (who were paid by the sellers of the products they were rating), were the major cause of the mortgage mess.

 

[Randolph Kinney]

Good article. It is like fraud although they will blame the computer software. I wonder if that works for all those mortgage applications with "bad" data on them?

 

[Pamela Crowley (Florida)]

Where did the 'ratings agencies' get their data?????????

 

[Riick]

"Quis custodiet ipsos custodes?" (Who guards the guards?)

Nobody, they free to do what they like.

 

[Lobo Fan]

Number hitting skippies? I guess it cuts across all industries.