Marketplace has a new podcast for kids, "Million Bazillion!" EPISODE OUT NOW

Bad triple-A was mislabelled risk

Stephen Beard May 21, 2008
HTML EMBED:
COPY

Bad triple-A was mislabelled risk

Stephen Beard May 21, 2008
HTML EMBED:
COPY

TEXT OF STORY

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.

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.