Tuesday, October 20, 2009
The reckless greed that helped bring on the financial collapse of the housing market was aided by the once-conservative bond rating house of Moody’s, an investigation by McClatchy Newspapers found. In late 2007, Moody’s fired analysts and executives who warned of trouble with home loans and replaced them with people from its “structured finance” division that helped Wall Street package loans into securities for sale to investors. The firm also loaded its compliance department with those who awarded the highest ratings to pools of mortgages that eventually turned into toxic assets for numerous financial institutions.
“This was a systematic and aggressive strategy to replace a culture that was very conservative, an accuracy-and-quality oriented [culture], a getting-the-rating-right kind of culture, with a culture that was supposed to be ‘business-friendly,’ but was consistently less likely to assign a rating that was tougher than our competitors,” Mark Froeba, a Moody’s senior vice president who was fired in late 2007, told McClatchy.
The investigation noted that Congress still does not know the full story of what went on inside Moody’s, making it difficult for lawmakers to make corrections in federal law that might avoid the same kind of mistakes from occurring again.
-Noel Brinkerhoff
Moody's Investors Service Purged Analysts Who Warned of Collapse in Late 2007, Investigation Finds (by Kevin G. Hall, McClatchy Newspapers)
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