Moody’s admitted that it had incorrectly rated about $1bn of debt resulting in capital losses to some investors of up to 60%. (Moody’s to investigate staff over rating bug – Financial Times – Sam Jones and Gillian Tett – 2 July 2008)
When the story first broke, S&P claimed that “Our model for rating CPDOs was developed independently and, like our other ratings models, was made widely available to the market. We continue to closely monitor the performance of these securities in light of the extreme volatility in CDS prices and may make further adjustments to our assumptions and rating opinions if we think that is appropriate.” (via naked capitalism – 21 May 2008)
So did Moody’s erroneous model by happy happenstance produce the correct answer?
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