Ratings Agency Rotten To Core With Conflicts, Corruption

Discussion in 'Wall St. News' started by Illum, Aug 19, 2011.

  1. Illum


    MOODY’S ANALYST BREAKS SILENCE: Says Ratings Agency Rotten To Core With Conflicts, Corruption, And Greed

    Provided by Business Insider

    A former senior analyst at Moody's has gone public with his story of how one of the country's most important rating agencies is corrupted to the core.

    The analyst, William J. Harrington, was employed by Moody's for 11 years, from 1999 until his resignation in 2010.

    From 2006 to 2010, Harrington was a Senior Vice President in the derivative products group, which was responsible for producing many of the disastrous ratings Moody's issued during the housing bubble.

    Harrington has made his story public in the form of a 78-page "comment" to the SEC's proposed rules about rating agency reform, which he submitted to the agency on August 8th. The comment is a scathing indictment of Moody's processes, conflicts of interests, and management, and it will likely make Harrington a star witness at any future litigation or hearings on this topic.

    The primary conflict of interest at Moody's is well known: The company is paid by the same "issuers" (banks and companies) whose securities it is supposed to objectively rate. This conflict pervades every aspect of Moody's operations, Harrington says. It incentivizes everyone at the company, including analysts, to give Moody's clients the ratings they want, lest the clients fire Moody's and take their business to other ratings agencies.

    Moody's analysts whose conclusions prevent Moody's clients from getting what they want, Harrington says, are viewed as "impeding deals" and, thus, harming Moody's business. These analysts are often transferred, disciplined, "harassed," or fired.

    In short, Harrington describes a culture of conflict that is so pervasive that it often renders Moody's ratings useless at best and harmful at worst.

    Harrington believes the SEC's proposed rules will make the integrity of Moody's ratings worse, not better. He also believes that Moody's recent attempts to reform itself are nothing more than a pretty-looking PR campaign.

    We've included highlights of Harrington's story below. Here are some key points:

    * Moody's ratings often do not reflect its analysts' private conclusions. Instead, rating committees privately conclude that certain securities deserve certain ratings--and then vote with management to give the securities the higher ratings that issuer clients want.

    * Moody's management and "compliance" officers do everything possible to make issuer clients happy--and they view analysts who do not do the same as "troublesome." Management employs a variety of tactics to transform these troublesome analysts into "pliant corporate citizens" who have Moody's best interests at heart.

    * Moody's product managers participate in--and vote on--ratings decisions. These product managers are the same people who are directly responsible for keeping clients happy and growing Moody's business.

    * At least one senior executive lied under oath at the hearings into rating agency conduct. Another executive, who Harrington says exemplified management's emphasis on giving issuers what they wanted, skipped the hearings altogether.

    Harrington's story at times reads like score-settling: The constant conflicts and pressures at Moody's clearly grated on him, especially as it became ever clearer that his only incentive not to "cave" to an issuer's every demand was his own self-respect.

    But Harrington's story also makes clear just how imperative it is that the ratings-agency problem be addressed and fixed. The current system, in which the government anoints organizations as deeply conflicted as Moody's with the power to determine sanctioned bond ratings is untenable. And the SEC's proposed rule changes won't fix a thing.

    Harrington's story is startling, both in its allegations and specificity. (He names many Moody's executives and describes many instances that regulators and plaintiffs will probably want to take a closer look at.)

    Given this, we expected Moody's to quickly denounce Harrington as a disgruntled ex-employee and reaffirm its confidence in its ratings processes and integrity. Instead, Moody's did not return multiple calls seeking comment.



    Everyone trying to jump ship, saying it wasn't me. Willing to flip and testify. Perp walks are coming.

    edit- Even if you did nothing, having Moody's on your resume will be worse than being an accountant and having Arthur Anderson. No one will ever trust you
  2. Warren Buffett and Moody are scumbags, he is the biggest mouth piece for government, telling Joe public that we need tax more on the "rich". Goddammit, he give most his money to private foundations which has the biggest tax loophole in the world. Giving live virus vaccines to third world country's kids, and telling us to kill old people so we can save money to hire more teacher. He can get away from insider trading but others have to go to jail. There are no cure for wallstreet problem unless we put those people like him into jail. WFC going down, MOFO.
  3. Illum


    They will rat each other out as the system crumbles. Those who try stay above the fray.. you're lunch. I'll guess, no reporter "dug" up the story about Issa and GS. This is one big f u fest. Just as corrupt as they have been with the public, they will take each other out in a similar dirty fashion. Moody's will be eaten alive for the masses, who's next lol.
  4. You are looney toons 22. Warren Buffett has way more ethics than anybody at moody's. There is zero evidence of him making insider trades.

    Moody's issues center around a lack of business ethics. The analysts most likely do face pressure to give ratings that will generate business. The solutions suggested in the CFA curriculum for these arrangements is "for a flat fee regardless of the conclusions of the reports for issuers."

    This is considered a solution because doing so eliminates the incentive to goose ratings for the sake of attracting more business. However, none of our ratings agencies have pursued this, but it is a prevalent practice in smaller credit rating firms who supply such reports.