Bad triple-A was mislabelled risk
We're starting to get a better explanation of why banks invested in those atrocious mortgage-backed securities. Stephen Beard reports a glitch with triple-A ratings could have been partially responsible.
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Scott Jagow: We're starting to getting a better explanation of why banks invested in those atrocious mortgage backed securities. The Financial Times is reporting that Moody's gave triple-A ratings to many of them wen they should've been rated much lower. And this was caused by a computer bug more than a year ago. The bug was fixed but those securities stayed Triple-A until January -- about the time things fell apart. Stephen Beard has more from London.
Stephen Beard: The error apparently occurred in the mathematical code that Moody's was using to assess the riskiness of complex financial products. It was little more than a minor typing mistake, but, says the Financial Times, it had big repercussions.
The paper claims that When Moody's discovered the problem last year, they realized that some $2 billion worth debt-backed securities had been given the same rating as U.S. government bonds, butT they were in fact much riskier.
This incorrect labelling may well have misled a lot of investors, says Sam Jones of the Financial Times:
Sam Jones: Typically, people who go buying triple-A products might be pension funds. They might be institutional investors. Many of them may not have bought the securities in the first place had they not been triple-A.
In a statement, Moody's says it is investigating the matter.
In London, this is Stephen Beard for Marketplace.
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05/21/2008
For once, can this company grow up and accept responsibility? Blame it on the poor computer bug. Isn't this company got paid hundreds of million to underwrite this paper? Computer Bug? I think you miss a word "intentional" -> Intential Computer Bug
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