SOMETHING FOR NOTHING

Moody's, one of the major rating agencies, gets caught with using a bad model of risk and then trying to cover up the effect. After correcting a glitch in the computer code, the ratings for a class of securities, CPDOs, were reduced but Moody's tried to BS its way out of giving new, lower ratings.

This story was broken by the Financial Times:

CPDOs expose ratings flaw at Moody’s
By Sam Jones, Gillian Tett and Paul J Davies
Published: May 20 2008 23:36 Last updated: May 20 2008 23:36

Other major financial publications, like the WSJ and Bloomberg, have also reported this and I think it's time we take a much harder look at these clowns. As with the sub-prime mess, there wasn't enough data to make accurate predictions:

Rating a CPDO involves making assumptions about the way the indexes of credit-default swaps will move, based on a limited history of the benchmarks. The U.S. index referenced by CPDOs was created in 2003; its European counterpart started in 2004.