Moody's to fix sub-prime computer error
CCC rating (That's Credit crunch computer cock-up)
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Moody's, the ratings agency, is reviewing its computer models and setting up a central monitoring system after admitting that a bug led it to incorrectly grade several European mortgage debt instruments.
The agency admits that it incorrectly gave its highest AAA rating to about $1bn worth of European "constant proportion debt obligations". Triple-A ratings are required before many investors like pension funds are allowed to invest.
Following a review of its processes Moody's found that its staff had not acted to cover up the error with the modelling. But it found some members of the monitoring committee had broken Moody's code of conduct.
Moody's said: "Specifically, some committee members considered factors inappropriate to the rating process when reviewing CPDO ratings following the discovery of the model error. According to Moody's Code of Professional Conduct, a committee may consider only credit factors relevant to the credit assessment and may not consider the potential impact on Moody's, or on an issuer, an investor or other market participant."
The company has started disciplinary proceedings against some staff. It has reviewed all CPDO ratings. It is checking existing models and so far has found no errors. It will continue to independently monitor ratings.
But the FT, which first reported the bug, claims to have seen documents which reveal three dozen other bugs in a core computer model used to rate structured products. Moody's told the paper that the bugs related to beta versions of the application which was not used to actually rate any products.
Moody's is facing legal action from several investors, including the Teamsters Pension fund, for misrepresenting bonds which were dependent on sub-prime mortages. ®
COMMENTS
Eron 2.0
Look some else changing the rules/cooking the books. I say if you get caught, you strap a flak jacket on you, put you on a plane, push you out over Iraq, and drop and m16 out the air plane. Parachute optional.
4 Chris
But I don't think anyone has yet gone to jail, which should certainly have happened. Not for the original bug. For the -c-o-v-e-r-u-p- "normalisation" that took place afterwards.
What really makes me mad is that this costs me every which way, and the perps walk away scot free.
I seriously misread that title
and thought Optimus Prime was going to fix the Moody computers (and all related moody users)
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