What Did Moody's Do Wrong If Anything?

1. What did Moody’s do wrong, if anything?
Moody's misinterpreted the hazard inalienable in a large number of complex resource supported securities, especially private home loan upheld securities that it appraised amid the mid-2000s. It quit rating RMBSs in mid-2007, and over the next year minimized more than 5,000 of them, including 90 percent of those first appraised in 2006 and 2007. The downsizes spoke to an affirmation by Moody's that its unique evaluations were off base. Seemingly, Moody's failed to consider the danger natural in the credits fundamental these intricate resources based securities, putting investors and, in fact, the whole budgetary framework in danger. In its own protection, Moody's would likely call attention to that

One of Moody’s worker by implication portrayed the competitive pressures which prompted the lapses in the appraisals frameworks. additionally, institutions, governments, and individuals who invested in RMBSs benefited, since these securities typically paid interest rates above those paid by other investments with comparable investment grade ratings during 2004-2007. Also, mortgage originators and investment banking firms earned high fees from selling, packaging, and marketing mortgage loans during the housing bubble of 2003-2 transactions that were enabled and facilitated by investment-grade ratings on mortgage backed

However, all of these groups, and others, suffered tremendous losses when these RMBSs later collapsed in value. Investment banks, mortgage companies, and commercial banks collapsed. Moody’s own stock fell in value.
3. Did Moody’s have a conflict of interest? If so, what was the conflict, and who or what were the principal and the agent? What steps could be taken to eliminate or reduce this conflict?
Yes, the current credit ratings agency business model, as the case explains, is by nature one in which the conflict of interest is unavoidable. Moody’s CEO Raymond McDaniel states however that conflict of interest will arise whether rating’s agencies utilize an issuer or investor-pays system. Each party has an interest in influencing the determinations of the credit ratings agencies; issuers are seeking to distribute securities and higher credit ratings allow these securities to appear more attractive to investors, on the other hand, institutional investors will always attempt to improve their investment portfolios and understandably would seek better ratings for securities in their possession. Additionally, the distinctions between issuers and investors have grown nebulous as parties in the present-day global financial system now actively participate in both roles. While this author believes that stronger government regulation with legal ramifications for purposeful inaccuracy is the only way to decisively mitigate or even eliminate