MOODY'S BLUES MAYBE

 
t.man hatter

Who says it doesn't pay to have friends in high places?

A new study on Moody's, one of the well-known rating agencies, reveals what study researchers call a "tangible bias," to quote their term.

That's a softer, kinder way, it seems, of saying a conflict of interest. Set to be presented this week at the American Association of Accounting meeting, the work compares Moody's ratings between 2001 and 2010 against those of  Standard and Poor's, its largest competitor.

According to these researchers, Moody's ratings showed a more favorable results for two of the rating firm's largest clients, Berkshire Hathaway and Davis Selected Advisors, a large New York based money management firm.

It turns out Berkshire and Davis are the two biggest shareholders in Moody's and Moody's for it part ranked bonds owned by Berkshire and Davis higher than Standard and Poor for the same bonds. How much higher, "a half notch," according to the researchers.

So what's the catch? Well, it equals about half a million dollars annual savings for the issuers of those bonds. Interest rates on bonds are determined at least in part by the quality of  their rating. Triple A-rated bonds will have to pay less interest because of their perceived quality. So half a notch here and half a notch there and pretty soon we're be talking about some serious savings.

Moody's, of course, denied any improper doings saying "...ratings are based on thorough, independent analysis of credit quality by our ratings committees, conducted according to publicly available methodologies."

Moody's went public in 2000 and Berkshire and Davis took large positions in the stock at the time. Another finding of the study showed that Moody's was slower--71 days slower to be exact--in down grading bonds "related to its long term large shareholders." 

Still another finding, per the Financial Times, showed a similar "pattern in the ratings awarded to commercial mortgaged-backed securities, which bundle together loans secured by shopping malls, office buildings..." 

Maybe this is just a flicker trying to become a flame. But then again maybe with all the corruption uncovered in the financial world these days, just maybe a deeper look will turn Moody's whole world misty blue.