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Former Moody’s man slams ratings agencies
24.09.09
A former Moody's analyst was today set to tell US lawmakers that the ratings industry is still hampered by the sorts of conflicts of interest that helped fuel the financial crisis.
Eric Kolchinsky, who left the New York firm this month after filing an internal complaint, was due to tell a congressional committee that stricter rules are needed because ratings agencies are paid by the firms they rate.
He also expressed concern that certain parts of Moody's Investors Service lack independence and are short-staffed, and analysts get “routinely bullied” by managers, according to a draft of his testimony seen by the Wall Street Journal.
Kolchinsky oversaw ratings of collateralised debt obligations — CDOs — backed by mortgage securities which turned out to be some of the most toxic investments held by banks at the height of the crisis.
He claims that “little has changed” since then despite ratings agencies shouldering a portion of blame for the financial crisis.
A Moody's spokesman said the company “has strong policies in place to manage conflicts and protect the independence and integrity of the ratings process”.
Reader views (1)
The rating agencies did and in my opinion do not fully undersand the complex products they are rate. Also, they get paid by the people they are rating (a clear conflict of interest). Their objection to living willing requirements for banks shows they are behind the times, banks need to understand moral hazard.
- Andrew, London
