Wednesday, May 21, 2008
Four notches lower
FT: Moody’s error gave top ratings to debt products
Moody’s awarded incorrect triple-A ratings to billions of dollars worth of a type of complex debt product due to a bug in its computer models
Posted by sosoon @ 07:26 AM (599 views) Add Comment
18 Comments
- If you do not have an admin password leave the password field blank.
- If you would like to request a password allowing you to add comments and blog news articles without needing each one approved manually, send an e-mail to the webmaster.
- Your email address is required so we can verify that the comment is genuine. It will not be posted anywhere on the site, will be stored confidentially by us and never given out to any third party.
- Please note that any viewpoints published here as comments are user's views and not the views of HousePriceCrash.co.uk.
- Please adhere to the Guidelines
1. tyrellcorporation said...
A bug?... oh that's ok then. People have lost billions because of a computer programming error - tsk, computers eh?!?
2. mark said...
so the poles will be going home then..lol
3. layers said...
Absolute boll**ks - I wonder who Moody's auditors are then? As if this is the case then another Enron-style scandle is upon us.
4. cornishman said...
they 'discovered' and fixed the 'coding glitch' early in 2007 - but didn't re-rate anything until Jan 2008, when there were general market declines and their ratings looked a tad optimistic.
Why's that then?
Couldn't be that they wanted time to offload stuff could it?
Naah - that would be dishonest.
5. Mattormsby said...
They just missed a zero off... come on... 1000,000 is nearly 10,000,000
easily done.. dont be so hard..
6. shipbuilder said...
They can't expect anyone to believe this, surely?
7. Driver said...
Oh dear
"Computer says yes" says Carol with a surprised look on her face.
8. d'oh said...
Why yes sir, I'd love to buy the Brooklyn Bridge...
9. mken said...
the bug was "if we rate AAA we'll get more business"
10. monty032 said...
Having worked as a computer programmer before I got my Finance PhD, this is entirely believable. Monstrous assemblages of computer programs processing billions of pounds daily really are held together with the logical equivalent of bits of string and sellotape. You have to see it from the inside to really appreciate the true dodginess of it. There was a story a few years back (reference appreciated) of a bank overpaying £10m when taking over a building society because of a spreadsheet error. And of course the senior managers and auditors don't (indeed, are not capable of) checking every line of code or spreadsheet formula. Moody's problem will be if it is shown that they waited a year before telling anybody.
11. d'oh said...
Monty032 - My suspicion (based on absolutely nothing whatsoever) is that the error was one of the correlation between assets in the bundles and this was not a programming error, but one of assumption, i.e. it was assumed that the risks of the individual assets was more or less uncorrelated. Secondly, given the value of these contracts, I'm sure a human had to be involved somewhere...and they couldn't have looked at bundles of loans that were 4 notches below triple A and not query the results of the computer model...surely?! Surely, you don't let this stuff lose on the financial markets without some testing?
I write exchange arbitrage software for a living these days, and I know when something wrong is coming out of my code, even if the numbers are "sort of" correct. Then again, we've hired a few financial software consultants used by the major banks in the past and their coding and work practices have been pretty shoddy...so perhaps you might be right...they certainly are not worth the £1000 a day they charge (actually, imho, they should pay us for the damage they do.)
12. inbreda said...
Monty, I am a statistical analyst and computer program, and for years, all their models have been doing is saying "it went up last month, it will go up next", which in some ways is true given the nature of speculation. There was no bug in their system - it's absurd to think that they made billions of pounds of trades for a considerable amount of time on the back of something flawed and didn't notice. This is a scapegoat for them. They have "adjusted" their models to include the possibility that maybe, just maybe, things will go down DESPITE the fact the y went up last month, and they think it will regain them some credibility. Well tufftits to them, because they have quite clearly been greedy, fraudulent and stupid, and blaming it on a technical glitch is the most pathetic copout I have ever heard. It was obvious to everyone (at least everyone on HPC) that CDOs and MBSs and the like were dangerous stuff. And they didn't have the intelligence to stop and wonder why all of this CLEARLY dodgy financial stuff was reported as AAA???? Or maybe they did, and thought - "well, we're only overseeing trillions of dollars of trade in this junk, so there's no hurry to fix the problem"
Pull the other one.
13. inbreda said...
No - I am a computer programmer, not a computer program.
14. cornishman said...
how do you know - for sure...?
15. renting2 said...
Inbreda @ 10/11 - Had visions of you as an 'agent' in a suit and dark glasses chasing people around a matrix.
16. sold 2 rent 1 said...
Utter rubbish.
If the Power Elite are close to being rumbled they always pull out the "mistakes and error" card.
There are countless examples:
The Great Depression, 9/11, Jean Charles De Mendez, Vietnam, sub-prime AAA ......TAKE A CLUE as Ian Lungold would say
17. Refusetobuy said...
One point people seem to be missing is that S&P are standing behind their models, which give a AAA rating to CPDO's.
Do you trust S&P ratings?
18. jack c said...
Who pays the ratings agencies?