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The Chaos at Moody's. Not So Much Ratings Agency as Lobbying Outfit

|Includes: BRK.A, BRK.B, Moody's Corporation (MCO), SPGI

ST. LOUIS ( -- Moody’s [NYSE:MCO], thoroughly discredited as a rating agency in the wake of the credit crisis it helped to generate, is receiving a lot of attention for threatening to cut America’s credit rating if the Bush era tax cuts are extended and President Obama’s extension of unemployment goes through.


Reported on CNBC, Moody’s warned: "From a credit perspective, the negative effects on government finance are likely to outweigh the positive effects of higher economic growth," analyst Steven Hess said in a report sent late on Sunday.


This is directly contradicted by another company division, Moody’s Analytics, where editor Mark Zandi says : 


The fiscal policy compromise reached this week by the Obama administration and congressional Republicans will be good for the economy next year. The planned temporary tax cuts and spending increases will provide a substantial boost to growth in 2011, ensuring that the still-fragile economic recovery evolves into a self-sustaining economic expansion.


The deal's surprisingly broad scope meaningfully changes the near-term economic outlook. Real GDP growth in 2011 will be nearly 4%, approximately 1 percentage point greater than previously anticipated. Job growth will be more than twice as strong, with payrolls growing by 2.6 million. Unemployment will be more than a percentage point lower; instead of hovering near 10% through the year, it will end 2011 well below 9%.


This is insidiously stupid.


The stupidity comes from one company producing diametrically opposed analysis in a field that projects its strength as rigorous financial analysis.


The insidiousness is that Moody’s is part of a state sponsored cartel - including McGraw-Hill’s [NYSE: MHP] Standard & Poor's - which is why Moody’s can continue to demand protection money in exchange for its “research”. 


The cartel is corrupt and bankrupt, but continues to be propped up and winked at because of the blinkered, remote control view of responsible investing that has become pervasive in the money management business. Put another way, this view says that as long as you can throw someone else’s opinion in front of an idea you have plausible deniability if it goes wrong. And that absolves investment advisors of having to do any independent research, which extends to the white labeling dishonesty where third party research is repackaged for customers.


What appears to have happened is that Moody’s view was initially Zandi’s version since it was published on December 8, and since the numbers appear to be the same. But when the bond market took a different view and started to sell down, Moody’s had to change course which materialized in the December 13 report. And how often haven’t we seen rating agencies follow the market rather than lead it.


Moody’s has been a reliable cheerleader for Keynesian foppery. For example, it claims a a 1.72 multiplier for food stamps. Fine, just confiscate everyone’s earnings and convert them to food stamps for instant prosperity... It has also appeared in the role of sock puppet for minority owner Warren Buffett whose businesses are disturbingly dependent on managing public policy to steer wealth away from private accumulation and deployment


Can we get rid of this cartel already? Credit default swaps do a much better job and they didn’t have 89% of their triple-A ratings turn out to be false.


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