Good Analysis Is Not Good Business at Moody’s

August 22 00:00 2011

New York, August 22 ( – While Standard and Poor’s is facing an inquiry by US Government Officials and SEC for its alleged misconduct while rating mortgage bonds before the 2008 crisis, Moody’s has to face a similar plight albeit home grown. Mr Harrington, who joined Moody’s as an analyst in 1999 and exited the firm in 2009 as a Senior Vice President has written an 80 page letter to federal regulators about the flawed policies adopted by Moody’s while rating mortgage bonds.

The allegations on Standard and Poor’s as well as Moody’s raise profound questions on whether independent credit rating agencies are designed to perform unethically given the current system they operate in. Mr Harrington’s letter discusses the constant conflict of interest that permeated all of Moody’s rating of mortgage bonds. The cause, he says was the fact that the banks that were supposed to be critically analysed by the analysts were the ones paying them! It is therefore logical for a company like Moody’s to pursue unethical means to keep their clients happy and revenues flowing. If they wouldn’t do it, someone else would!

Mr Harrington states that he was constantly rated high on his performance parameters but at performance appraisals he was told to be a bit lenient on the banks and keep an eye on whats good for the bottom line of Moody’s. This is what makes it seem like good analysis just does not make good business sense at a credit rating agency.