When the economy began to melt down last year, we followed the money and investigated the role credit rating agencies played in the financial collapse. Greed, it seemed, led some agencies to make overly-optimistic ratings decisions, resulting in billions of dollars in losses to investors big and small.
Our reporting led us to Frank Raiter, a former managing director at Standard & Poor's, who revealed how he was pressured to compromise standards in a push for profits. He testified before Congress about what he witnessed first hand.
Now, after congressional hearings, regulatory scrutiny, and reform at credit rating agencies, Eric Kolchinsky, a former analyst who recently resigned from Moody's Corp., has come forward with a disturbing new allegation. Kolchinsky says the practice continues; credit ratings are still knowingly being inflated.
According to a Sept. 23 article in the Wall Street Journal:
“Eric Kolchinsky said Moody's Investors Service gave a high rating to a complicated debt security in January 2009 knowing that it was planning to downgrade assets that backed the securities. Within months, the securities were put on review for a downgrade.”
'Moody's issued an opinion which was known to be wrong,' Kolchinsky wrote in a July letter to the rating firm's chief compliance officer … Mr Kolchinsky cited other instances in which he believes inflated ratings were given to securities.”
Kolchinsky is scheduled to testify on ratings-firm reform before the House committee on Oversight and Government Reform on Wednesday, September 30, 2009.