Moody’s Investor Service
Moody’s Investor Service is one of the most world-renowned sources for credit ratings, risk analysis and economic research. They currently serve over 9,300 customers at 2,400 institutions world-wide. According to the company page, their “ratings and analysis covers more than 100 sovereign nations, 12,000 corporate issuers, 29,000 public finance issuers and 96,000 structured finance obligations.” Their end goal is to give advice industry professionals and investors can use to protect their investments.
Of course not all advisory services are right 100% of the time and investors do lose money on AAA rated financial products — sometimes a lot of money. More than one investor has appealed to district judges, complaining that they were misled by “deceptive ratings.” In the past, Moody’s has countered this argument that their opinions and investment advice are protected by First Amendment/Free Speech rights. On September 2nd, in a landmark decision, U.S. District Judge Shira Scheindlin rejected these First Amendment claims and ruled that investors are allowed to sue these companies. “It reminds me of when the courts finally ruled a tobacco victim could sue a cigarette company,” said David Einhorn, 40, a hedge fund manager who is betting against Moody’s Investor Service. “The damage in this case is large, relative to the ability to pay.” Even so, Moody’s spokespeople said they are “confident” that this judgment will turn out well.
Moody’s Investor Service does not have an entirely clean slate, however. One of the problems, NY Times writer David Gillen points out, is that “Dominant agencies like Moody’s and Standard & Poor’s are paid by the companies whose securities they are evaluating. Under this so-called issuer-pay model, the industry maximized its profits at investors’ expense, and, in the process, imperiled the entire financial system” (6/4/09). In the future, we are likely to see a shift in advisory services to improve the legitimacy of the ratings to a more unbiased system.
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This entry was posted on Saturday, February 27th, 2010 at 12:12 am and is filed under Business and Management. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.
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