Find all School-related info fast with the new School-Specific MBA Forum

It is currently 16 Apr 2014, 02:33

Close

GMAT Club Daily Prep

Thank you for using the timer - this advanced tool can estimate your performance and suggest more practice questions. We have subscribed you to Daily Prep Questions via email.

Customized
for You

we will pick new questions that match your level based on your Timer History

Track
Your Progress

every week, we’ll send you an estimated GMAT score based on your performance

Practice
Pays

we will pick new questions that match your level based on your Timer History

Not interested in getting valuable practice questions and articles delivered to your email? No problem, unsubscribe here.

Events & Promotions

Events & Promotions in June
Open Detailed Calendar

Just blame it on a computer error!!!!

  Question banks Downloads My Bookmarks Reviews Important topics  
Author Message
Senior Manager
Senior Manager
User avatar
Joined: 30 Jul 2007
Posts: 385
Location: Europe
Schools: St. Gallen '09
Followers: 6

Kudos [?]: 56 [0], given: 5

GMAT Tests User
Just blame it on a computer error!!!! [#permalink] New post 20 May 2008, 21:16
This is absolutely ridiculous!!!!

http://www.ft.com/cms/s/0/0c82561a-2697 ... 07658.html

Moody’s error gave top ratings to debt products

By Sam Jones, Gillian Tett and Paul J Davies in London

Published: May 20 2008 23:36 | Last updated: May 20 2008 23:36

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, a Financial Times investigation has discovered.

Internal Moody’s documents seen by the FT show that some senior staff within the credit agency knew early in 2007 that products rated the previous year had received top-notch triple A ratings and that, after a computer coding error was corrected, their ratings should have been up to four notches lower.
EDITOR’S CHOICE
CPDOs expose ratings flaw - May-20
In depth: Ratings Agencies - Sep-17
Moody’s sticks to ratings scale - May-14
Moody’s goes for volatility and loss sensitivities - May-14
Ratings agencies slam guarantee proposals - Apr-28
Moody’s tougher on mortgage lenders - Mar-26

News of the coding error comes as ratings agencies are under pressure from regulators and governments, who see failings in the rating of complex structured debt as an integral part of the financial crisis. While coding errors do occur there is no record of one being so significant.

Moody’s said it was “conducting a thorough review” of the rating of the constant proportion debt obligations – derivative instruments conceived at the height of the credit bubble that appeared to promise investors very high returns with little risk. Moody’s is also reviewing what disclosure of the error was made.

The products were designed for institutional investors. In the recent credit market turmoil, those who still hold the products will have suffered some paper losses while others who have bailed out have lost up to 60 per cent of their investment.

On discovering the error early in 2007, Moody’s corrected the coding glitch and instituted methodology changes. One document seen by the FT says “the impact of our code issue after those improvements in the model is then reduced”. The products remained triple A until January this year when, amid general market declines, they were downgraded several notches.

In a statement to the FT, Moody’s said: “Moody’s regularly changes its analytical models and enhances its methodologies for a variety of reasons, including to reflect changing credit conditions and outlooks. In addition, Moody’s has adjusted its analytical models on the infrequent occasions that errors have been detected.

“However, it would be inconsistent with Moody’s analytical standards and company policies to change methodologies in an effort to mask errors. The integrity of our ratings and rating methodologies is extremely important to us, and we take seriously the questions raised about European CPDOs. We are therefore conducting a thorough review of this matter.”

Credit ratings are hugely important within the financial system because many investors – such as pension funds, insurance companies and banks – use them as a yardstick either to restrict the kinds of products they buy, or to decide how much capital they need to hold against them.

The world’s other major credit agency, Standard and Poor’s, was the first to award triple A status to CPDOs but many investors require ratings from two agencies before they invest so the Moody’s involvement supplied that crucial second rating.

S&P stood by its ratings, saying: “Our model for rating CPDOs was developed independently and, like our other ratings models, was made widely available to the market. We continue to closely monitor the performance of these securities in light of the extreme volatility in CDS prices and may make further adjustments to our assumptions and rating opinions if we think that is appropriate.”
Just blame it on a computer error!!!!   [#permalink] 20 May 2008, 21:16
    Similar topics Author Replies Last post
Similar
Topics:
New posts Instead of blaming an airline accident on pilot error, GMATPIPO 4 07 Jan 2005, 15:48
New posts Instead of blaming an airline accident on pilot error, nocilis 5 28 Jan 2005, 14:00
New posts Instead of blaming an airline accident on pilot error, HIMALAYA 9 22 Jul 2005, 19:59
New posts Instead of blaming an airline accident on pilot error, arjsingh1976 7 27 Oct 2006, 01:53
New posts Instead of blaming an airline accident on pilot error, surbab 6 05 Apr 2007, 10:39
Display posts from previous: Sort by

Just blame it on a computer error!!!!

  Question banks Downloads My Bookmarks Reviews Important topics  


GMAT Club MBA Forum Home| About| Privacy Policy| Terms and Conditions| GMAT Club Rules| Contact| Sitemap

Powered by phpBB © phpBB Group and phpBB SEO

Kindly note that the GMAT® test is a registered trademark of the Graduate Management Admission Council®, and this site has neither been reviewed nor endorsed by GMAC®.