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Moody's Corporation will now face legal action by the Federal govt. They have received their "wells notice" that legal action is forthcoming. No doubt there will be more corporations facing legal action by the Fed's.
I can well imagine that there will be many civil suits against the ratings agencies. They rated stuff AAA without checking to see what was in it! Many of the buyers (long) of these crap CDSs were investors (pension funds, etc) who are restricted to investing in paper that has a rating of a certain "quality".
AAA essentially means that anything rated with that is AS SAFE AS US GOVERNMENT PAPER. Which it clearly was NOT.
It's about time. Moody should have been one of the first being investigated. A large multi-million dollar fine and some jail time should be a good start.
That's what happens when you start letting the "investment vehicles" you rate, buy their own grades.
From my very limited understanding I believe that the rating agencies are payed by the same financial's that they are rating.Wow this is a good system,not.You never bite that hand that feeds you, so what we expecting from Moody's?
Case in point,you are buying a house and the lender is requiring you to get a appraisal,most likely they have someone in the field that they have worked with numerous times.Say you are borrowing 80,000,do you think that the appraiser is going to be objective and honest enough to come back with a figure that is lower then 80,000?Of course not,he knows that if he did that the lender would never ever use his services again.
Same thing with Moody and other rating agencies,GS brings them heavy traffic and in turn increases their profit margins.Moody's will not cut their own throat,they will let them bring in the worst pile of s*** and slap a AAA rating on it in a heartbeat.What would you do?
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