Another Jackass Investing “Poor-folio Award”

This award goes to Moody’s, Standard & Poor’s and Fitch Ratings, the three credit rating agencies whose incompetence contributed to one of the greatest destructions of wealth and confidence in the global financial system ever, and helped precipitate the financial crisis of 2008.

The greed and incompetence of the credit ratings agencies is now well-known.  I first described this and their conflict-of-interest addled ratings process in Myth #13: “It’s Best to Follow Expert Advice” of my book Jackass Investing: Don’t do it. Profit from it. You can read the full text of that chapter here: http://scr.bi/nPGd9t. (The chapter also weaves in interesting references to stock market gurus, financial analysts, ways that rats outsmart humans, and the Apollo moon landings.)

But now it becomes apparent that the greed and incompetence of the ratings agencies were built on a foundation of corruption. The disturbing case of corruption was reported in a 78-page “comment” made by William J. Harrington, an 11-year employee and Senior Vice President of Moody’s, one of the big three ratings agencies. The story was reported by Henry Blodgett here: http://www.businessinsider.com/moodys-analyst-conflicts-corruption-and-greed-2011-8. (And Blodgett certainly knows corruption and conflicts-of-interest. He was sanctioned for putting public buy ratings on stocks that his employer was underwriting, when he personally believed them to be “dogs.”)

Harrington wrote that – surprise – Moody’s often gave out ratings that its clients wanted, against the private conclusions of its analysts; and that Moody’s product managers, those who were responsible for growing business and keeping clients happy, also voted on ratings decisions. You can read Harrington’s comments in their entirety here: http://www.sec.gov/comments/s7-18-11/s71811-33.pdf.

It would have been justification enough to issue this award on the basis of greed and incompetence alone, the charge of corruption makes Moody’s more worthy yet.

Related articles:

http://www.onwallstreet.com/news/credit-rating-study-asset-class-treatment-2674895-1.html

http://www.businessinsider.com/moodys-analyst-conflicts-corruption-and-greed-2011-8

http://www.credit.com/blog/2011/08/amid-multiple-scandals-standard-poors-ceo-resigns/

http://blogs.reuters.com/financial-regulatory-forum/2011/08/15/start-up-rating-agencies-urge-national-regulators-to-promote-competition-change/

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