With Friends Like Moody's...

Good to see Moody’s rebuilding its franchise. Their aura of mystery is still reassuringly intact, two years after the subprime CDO ratings fiasco, as a bemused Firedoglake notes, in connection with two diametrically opposed, and politically charged, opinions about the tax cuts and their projected effect on the US credit rating:

Can someone tell me why the same guy, at the same ratings agency, does a 180 in less than one week, when the deal hasn’t changed an iota?

A cynic might think that the Dec 7th report was Moody’s putting all its credibility behind the deal to extend the tax cuts, while the Dec 12th report was Moody’s putting all its credibility behind a move to ensure Obama got no political credit for it, once the deal, that they had implicitly supported a week earlier, was looking much more certain. That type of maneuver will have a familiar feel to the bedraggled Obama, one suspects.

Anyhow, if you are shocked, shocked at the idea of credit rating agencies working a political angle, you can comfort yourself with the thought that no stratagem underpinned by all Moody’s credibility is going to be very threatening.

With those reminders of old and recent form, let us consider what Moody’s has to say about the Kemp v. Countrywide Home Loans Inc. case, wherein an erstwhile Countrywide employee strayed off the script and admitted that Countrywide typically failed to deliver mortgage notes to trustees for home-loan securities. If Countrywide (or BofA) wanted to have a credible party to show all was well in mortgage-land, it would need to be someone independent and with some investigative skills; but they’ve got Moody’s instead.

One notes in passing that the review by Moody’s is unaccompanied by full disclosure of Moody’s earnings on rating Countrywide securitizations. One also notes that Moody’s are surprisingly keen to acknowledge that the operational practices of securitizers fall within their purview. One wonders how compromised they would be by any revelation that there were wholesale failures to deliver mortgage notes properly into the trusts of Moody’s-rated issues.

Moody’s, unsurprisingly, says it ain’t so, for Countrywide, anyway, and Bank of America can breathe again, except that:

Confidentiality restrictions prevent Moody’s from saying which documents it reviewed, Forster said. The ratings company referred to the documents in a Dec. 9 report.

Relying on Moody’s opinions didn’t work out to well for any of the maimed operations now huddled under the Bank Of America umbrella: not Countrywide, nor Merrill Lynch, nor BoA itself, so let’s see how well “taking Moody’s word for it” works out, this time.