Moody's Brings In the Lawyers

Moody's second statement on the CPDO scandal shows - in the wake of their stock falling 16% yesterday and Chuck Schumer breathing fire - that they're finally beginning grok just how serious it is. The first statement, you'll recall, merely said that they were "conducting a thorough review of this matter". The new one goes further, and explains that the thorough review will be an external review, by Sullivan and Cromwell. Better.

I do hope that the review, although it is confined to the "European CPDO ratings process," will be given the freedom to examine more generally the pressure on Moody's (MCO) structured products group to deliver the triple-A ratings that investment banks were paying millions of dollars for. In this case, when Moody's found out that it couldn't get to triple-A one way, it lost no time in getting to triple-A some other way instead. If that happened in the European CPDO ratings group, it could have happened anywhere.

Comments

[LockstepInvesting]

I completely agree with you Felix. I have been short MCO since April 2007 and my contracts expire JAN 2010. Structured products have been incorrectly rated for a long time now. It is finally coming out and I expect to see the probe to expand to a whole array of products now.

[abshake]

If these European CPDOs were incorrectly rated AAA by moodys, then S&P and Fitch should have a different rating which did not happen....my guess this whole computer thing is to delay legal proceeding for improper ratings...

[nickgogerty]

Who says they were incorrectly rated. I think they reflect what AAA securitised products performance is pretty effectively. The faith in ratings is risk failure 101. Concentrated opinion, capital or money flow= concentrated risk. Wait for Basel II to be fully implemented then we can really see concentrated faith in models in action. Concentration is Risk. Model risk, price risk, liquidity...all are failures to of a divergence of opinions leading to bubbles.