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Bad triple-A was mislabelled risk

Stephen Beard May 21, 2008
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Bad triple-A was mislabelled risk

Stephen Beard May 21, 2008
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Scott Jagow: We’re starting to getting a better explanation of why banks invested in those atrocious mortgage backed securities. The Financial Times is reporting that Moody’s gave triple-A ratings to many of them wen they should’ve been rated much lower. And this was caused by a computer bug more than a year ago. The bug was fixed but those securities stayed Triple-A until January — about the time things fell apart. Stephen Beard has more from London.


Stephen Beard: The error apparently occurred in the mathematical code that Moody’s was using to assess the riskiness of complex financial products. It was little more than a minor typing mistake, but, says the Financial Times, it had big repercussions.

The paper claims that When Moody’s discovered the problem last year, they realized that some $2 billion worth debt-backed securities had been given the same rating as U.S. government bonds, butT they were in fact much riskier.

This incorrect labelling may well have misled a lot of investors, says Sam Jones of the Financial Times:

Sam Jones: Typically, people who go buying triple-A products might be pension funds. They might be institutional investors. Many of them may not have bought the securities in the first place had they not been triple-A.

In a statement, Moody’s says it is investigating the matter.

In London, this is Stephen Beard for Marketplace.

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