Hello:
Moody's Corporation, one of the world's largest investment rating services,
is singing the blues. Last week, Financial Times, uncovered that a bug in
Moody's computer models lead Moody's to award AAA (top) ratings to complex
derivative assets. Once the coding error was corrected, the ratings should
have been up to four notches lower.
Why is this important? Because investment by institutions and pension funds
into these Constant Proportion Debt Obligations (CPDO's) lead to losses of
up to 60%. That is unprecedented in the AAA marketplace and relates to the
troubles in Wall Street and the troubles on Main Street.
The other large investment rating service, Standard and Poor's, who also gave
CPDO's a top rating, was quoted in the Financial Times as saying "our
model for rating CPDO's was developed independently and, like our other ratings
models, was made widely available to the market". However, two wrongs
do not make a right!
Today, the Securities and Exchange Commission (SEC) announced that they have
widened their probe of Moody's to include Standard and Poor's.
Investing well requires more than just information.
It requires knowledge and experience. At TriSummit Investment Advisors, we
look at more than just the ratings when we research a potential investment.
For more information, please contact us at your convenience. We enjoy hearing
from you, and please, don't keep us a secret!
Terri
G. Millson, CIMA, CIMC
President |
Ray
Dicius, CSA, GEPC
LPL Branch Manager |
05/27/2008