View Single Post
Old 03-12-2009 | 02:36 PM
  #2  
HSLD's Avatar
HSLD
APC co-founder
 
Joined: Feb 2005
Posts: 5,853
Likes: 0
From: B777
Default

For context on Moody's list, and other credit rating agencies, check out this article from Wired Magazine.

Recipe for Disaster: The Formula That Killed Wall Street

In short, the article describes the "designer math" used to rate credit risk. The author quotes many industry insiders who claim using a financial Copula function is "charlatanism".

While the rating agencies didn't create the [Li's] Copula formula, they gave it credibility and provided risk assessment based on a faulty model.

So, back to the Bottom Rung list above -
the Bottom Rung, which details which companies the ratings agency says are most likely to default on their debts.
While all of the companies listed are facing debt and liquidity issues, I think the risk for Moody's is credibility. Without publishing the basis of their assumption, and a recent history of using a faulty model, what is the value of a Moody's rating?
Reply