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Home Publications Blogs Beat the Press Moody's, Which Gave Investment Grade Ratings to Hundreds of Billions of Toxic Mortgage Backed Securities

Moody's, Which Gave Investment Grade Ratings to Hundreds of Billions of Toxic Mortgage Backed Securities

Friday, 03 June 2011 04:24

The Washington Post had a major article on a threat by Moody's to downgrade U.S. debt. The article identifies Moody's as "one of the premier credit-rating agencies." It also would have been reasonable to identify Moody's as one of the credit rating agencies that helped to extend the housing bubble by routinely giving investment grade ratings to mortgage backed securities and collaterized debt obligations that were full of bad and even fraudulent mortgages.

Moody's also has managed to miss most of the major corporate bankruptcies in recent years, giving both Lehman's and Bear Stearns top investment grade ratings until just before their collapse. It's record on rating sovereign debt is also not very good. It downgraded Japan's debt almost a decade ago yet Japan can still borrow long-term at interest rates of less than 1.5 percent. This suggests that financial markets do not have much regard for Moody's ratings. This would have been useful information to provide readers.

Comments (2)Add Comment
written by izzatzo, June 03, 2011 5:19
Since Moodys plans to expand its services to accept bribery payments from the government not to downgrade its debt this should not be a problem.
written by Kathy, June 03, 2011 8:11
Why is Moody's even still in business? They should be dissolved as a matter of public policy -- their worthless rubber stamp is nothing more than a private tax on market activity.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.