It looks like there is yet another link in the chain of corruption and/or incompetence that led to the subprime crisis. As time goes on and information about the crisis reveals itself, it seems that every link in the financial chain featured people afflicted with an adversity toward doing the right thing.
Who is it this time?
The FT also reported that it possessed internal documents that showed the rating agency was aware of the glitch in early 2007, yet still maintained the AAA rating until early 2008, when market turmoil in the debt markets led to downgrades. This suggests that there could have been an attempt at a cover-up.
The besieged debt rating agency announced Wednesday that it has hired the law firm of Sullivan and Cromwell to conduct a "thorough external review" of the ratings process it used. I'm sure Moody's is anxious to get to the bottom of it.
What's the damage?
The major rating agencies -- Moody's, McGraw-Hill's (NYSE: MHP) Standard & Poor's, and Fitch -- have already been sharply criticized for incorrectly rating subprime mortgage debt. This latest fiasco just confirms the most cynical suspicions. Moody's looks either corrupt or incompetent.
The fallout from this for Moody's shareholders has not been pretty. The stock has already plummeted more than 50% from its 52-week high and some 20% since this story broke.
The issue with a computer glitch and, worse, possible confirmation of many people's suspicions, can only harm investor's confidence in the company's integrity. That integrity is the company's sole stock in trade. Without it, the firm could find it difficult to even survive.