The ratings agencies are at it again. Yesterday, S&P (the largest credit ratings agency) announced that it has placed Moody’s (its biggest competitor) on credit watch negative. S&P cited one of the reasons as being the computer bug that is believed to have resulted in Moody’s accidentally giving AAA ratings to some Constant Proportion Debt Obligations (CPDOs), a form of structured credit. According to the Financial Times, Moody’s may have intended to rank the CPDOs as much as four notches lower.
Hang on a second. S&P gave the very same CPDOs an AAA rating, and that was without any computer bugs. So one agency is concerned another agency has failed in not coming to the same conclusion as itself. It would be a laughing matter, if not for the fact that investors and regulators rely on these agencies so heavily. It takes me back to February last year – see Stefan’s article here on the Icelandic debacle.