Triple A for Fake Alpha
Sam Jones, Gillian Tett and Paul J Davies report that Moody’s discovered a coding error in the model it used to rate CPDOs. The bug resulted in ratings for some CPDOs that were up to four notches too high.
The bug isn’t the problem, the rating model is. As the old man said regarding risk premiums (CDS) on bonds: that a “premium for risk” is needed is really an elliptical way of saying that payment of the full face of interest and principal is NOT to be expected on average.
Moody’s error gave top ratings to debt products
Moody’s errs in rating debt products
Five facts about CPDOs
Financial Times reports that Moody’s made “coding error” on CPDOs: Fishknife comments at Creditflux
May 21st, 2008 at 8:31 am
[...] to billions of dollars of structured debt due to a coding error. (FT Alphaville also NakedShorts, Alea, Market [...]
May 21st, 2008 at 11:37 am
[...] Triple A for Fake Alpha SEC unsure of authority in reported Moody’s error Moody’s launches CPDO inquiry after error report Moody’s Reviews Its Rating of CPDOs [...]