Moody's Defense: Incompetence
Moody's Corp. (MCO), the second-largest rating company, is facing government scrutiny after initiating their own internal investigation into whether a 'computer error' gave AAA ratings to securities that didn't deserve them.
According to the Financial Times, internal Moody’s documents show that some senior staff within the credit agency knew early in 2007 that products rated the previous year had received AAA ratings and that, after a computer coding error was corrected, their ratings should have been up to four notches lower. Upon discovering the error early in 2007, Moody’s corrected the coding glitch and instituted methodology changes, the newspaper reported...Look, here's the bottom line: Moody's will essentially have to use incompetence as its defense...
We're not rocket scientists with fancy computer models, so the real question is how a bunch of guys like us knew as early as May of 2007 that deteriorating collateral values in the mortgage market were not being reflected in the credit ratings of complicated credit products?"
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