The primary conflict of interest at Moody's is well known: The company is paid by the same "issuers" (banks and companies) whose securities it is supposed to objectively rate. This conflict pervades every aspect of Moody's operations, Harrington says. It incentivizes everyone at the company, including analysts, to give Moody's clients the ratings they want, lest the clients fire Moody's and take their business to other ratings agencies.
In other words: if you reflect what we (banks) tell you, you will get paid, otherwise not. Result: sub-prime mortgages were given AAA ratings. The more reckless the behavior of banks became, the higher the profits of credit rating agencies grew. In plain words: fraud was committed and we pay the bill for this through austerity crap.
Perhaps I should also start a credit rating agency. Simply share your 'opinion' (as their CEO's call ratings) and become rich.
Moody's ratings often do not reflect its analysts' private conclusions. Instead, rating committees privately conclude that certain securities deserve certain ratings--and then vote with management to give the securities the higher ratings that issuer clients want.
Moody's management and "compliance" officers do everything possible to make issuer clients happy--and they view analysts who do not do the same as "troublesome." Management employs a variety of tactics to transform these troublesome analysts into "pliant corporate citizens" who have Moody's best interests at heart.
Moody's product managers participate in--and vote on--ratings decisions. These product managers are the same people who are directly responsible for keeping clients happy and growing Moody's business.
At least one senior executive lied under oath at the hearings into rating agency conduct. Another executive, who Harrington says exemplified management's emphasis on giving issuers what they wanted, skipped the hearings altogether.
It's not protestors who destroy countries, it's these very monsters who do. If revolutions appear in the West, it's them to blame, not the average Joe on the street.
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