No doubt relying on the integrity of the venerable Moody’s Triple A rating, investors of all stripes have sunk untold amounts of money into financial instruments which it turns out should NOT have been rated AAA in the first place. Moody’s is blaming this on a “computer bug.” And if that’s not bad enough, Moody’s knew about the problem since early 2007, and never told the investors or anyone else apparently. Only after an investigation by a FT journalist uncovered what looks like an outright fraud did Moody’s admit the “bug” this week.
“The FT’s investigation into Moody’s rating of CPDO has shown that:
Moodys made an error in its mathematical code used to assign a rating to CPDOs. The error was discovered in early 2007, but it appears that investors in the bonds and clients were not informed.
Several CPDOs produced by ABN Amro had already been rated, and many more – from a whole range of other banks – were in the pipeline. Moody’s put the rating of these nascent CPDOs on hold.
Discussions on what to do about the error were led by some of the most senior staff in Moody’s European structured finance business. Although the CPDO rating committee, comprising senior staff and analysts, discussed the coding error, it does not appear to have discussed whether the issue should be – or was – disclosed to clients or investors.” http://ftalphaville.ft.com/blog/2008/05/21/13224/cpdos-triple-a-failure/