Moody’s Updates Code of Conduct While Investors Sing the Blues

The trickle down theory does not get the respect it deserves...particularly when an investment thesis trickles down from famed-short seller Jim Chanos.

Chanos made some noise over the ratings agencies in the spring of 2007, and later that summer the rout was on. Forget about perp walking a hedge fund manager, these dudes from Moodys (MCO-NYSE) need to be strung up by their balls. Unfortunately Chanos was only looking for lawsuits:

July 19, 2007
Chanos said in May that Moody’s might face lawsuits for keeping its ratings of subprime loans too high.....Moody’s is ``integrated into the whole underwriting cycle of structured finance,’’ or bonds based on the repayment of mortgages and other loans. ``We believe they and the other rating agencies have been reticent to downgrade anything.’

Moodys is now on the path to atonement, and has adopted new rules for its analysts.

Moody’s Investors Service announced today that it has published an updated Code of Professional Conduct.

The revisions to the MIS Code are centered on three broad areas: quality and integrity of the ratings process, independence and avoidance of conflicts of interest, and responsibilities to the investing public and issuers.

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Too little, too late? Maybe....the structured finance industry cannot be blamed for everything that has gone wrong, but were among the worst of the thieves..

Of course, the announcement today was only an update to the code...and clearly they were barely paying lip service to it prior.

Previously a Moody’s manager commented the firm’s ratings mistakes “make us look either incompetent at credit analysis, or like we sold our soul to the devil for revenue.”

Revenues for Moody’s, Fitch and S&P doubled between ‘02 and ‘07, from $3 to $6 billion, and Moody’s profits quadrupling between 2000 and 2007. At least they were paid better for selling there soul than blues legend Robert Johnson.

Of course, Johnson only lived for a brief time after making that trade with the devil.

During a depression.

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Moodys Investors Service Updates its Code of Professional Conduct
Business Wire

October 2007
Depressing Times For Moody’s Corporation
1440 Wall Street
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