At the start of this year, Moody’s published a research piece entitled ‘Archaeology of the crisis’. One might have expected the rating agency to steer clear of digging up the bones of the sub-prime debacle, as it, along with its fellow raters, wrongly classed billions of dollars of sub-prime RMBS and ABS CDOs as top-quality securities. It seemed that the rating agency was starting 2008 with a New Year confessional.
But this was no mea culpa. Rather, Moody’s argument boiled down to this: "It is wrong to blame us or other actors for what has just taken place, because things are so complicated it is virtually impossible for anyone to really know what is going on. But hey, it’s OK because without financial markets being allowed full freedom to operate and innovate, economic growth would slow."
This is facile. It ignores the fact that most so-called innovations have been thought of before – just under another guise. Excessive leverage is a commonplace feature of bubbles. It’s the task of regulators and rating agencies to analyse the structural complexity that disguises it, not to avoid responsibility by hiding behind that complexity.
Six months on, news emerges of Moody’s failure accurately to rate constant proportion debt obligations because of a glitch in its computer software.