Morning:
14°c
Former Moody’s chief attacks inflated ratings
23.09.09
The role of ratings agencies was back in the spotlight today after a recently departed Moody's analyst said that inflated ratings are still being issued.
Eric Kolchinsky claimed Moody's Investors Service gave a high rating to a complicated debt security in January 2009 knowing it was planning to downgrade the assets that backed it.
Within months, the newly rated security was put under review for a potential downgrade.
“Moody's issued an opinion which was known to be wrong,” said Kolchinsky in a letter to the firm's chief compliance officer seen by the Wall Street Journal.
The major credit rating agencies were lambasted in the financial crisis for their overly rosy ratings of complex securities which turned out to be duds and triggered billions of pounds of losses.
Kolchinsky, a managing director at Moody's before he resigned, is due to testify to US lawmakers on ratings firm reform tomorrow.
He said he felt “some moral responsibility for the poor... ratings” issued under his watch.
“I was part of the process that did this damage and I feel I should try to do something now to make sure it doesn't happen again,” he said.
Reader views (1)
Who pays the rating agents their fees? Its only the people they are rating, lawyer would be struck off for this. Also, I fear the rating agencies do not understand the complex products they are being asked to rate and like the global regulators do not have the money to hire the best people. Mr Kolchinsky is confirming our fears.
- Andrew, London
