Carolina Pad Case Summary
What did Moody’s do wrong, if anything?
Legally, Moody’s did nothing wrong. But Moody’s, through it rating system, enabled other agencies to provide loads to individuals that were not qualified all in the name of financial gain. Was Moody’s at fault, no, was the financial system that Moody’s was part of, flawed – absolutely, yes. The issue that that Moody’s needed to address was how ethical were their decisions as a company as their revenue grew from $564 million in 1999 to nearly $2.3 billion in 2007 – an increase of nearly 75% in 8 years. Does a company’s ethical duty exceed legal obligation?
Which stakeholders were helped and which were hurt, by Moody’s actions?
The companies that provided the securities in exchange for favorable ratings were the stakeholders that benefitted the most. The case study also mentions that Moody’s charged 11 basis points ($11 for every $10,000 in value) for RMBS (residential mortgage backed securities) due to the complexity of the security, which is higher than the typical 4.25 basis points for traditional corporate bonds which makes Moody an obvious stakeholder as well. The more RMBS’s that were issued and sold by lending institutions to investment houses, the more Moody would make as it rated each transaction. The investors, such as Merrill …show more content…
My opinion is that Moody’s has to bear some of the blame for the crisis as it was the one that provided the positive credit ratings to the investment bankers, as well as compensating them for issuing the loans. They did not rate the home owners or the mortgage lenders themselves; I view this as the trickle-down theory. Moody’s was the top of the pyramid and facilitated the ratings which drove the lenders to create the loans, which were sold the investment banks for cash to generate more loans to unsuspecting home
Legally, Moody’s did nothing wrong. But Moody’s, through it rating system, enabled other agencies to provide loads to individuals that were not qualified all in the name of financial gain. Was Moody’s at fault, no, was the financial system that Moody’s was part of, flawed – absolutely, yes. The issue that that Moody’s needed to address was how ethical were their decisions as a company as their revenue grew from $564 million in 1999 to nearly $2.3 billion in 2007 – an increase of nearly 75% in 8 years. Does a company’s ethical duty exceed legal obligation?
Which stakeholders were helped and which were hurt, by Moody’s actions?
The companies that provided the securities in exchange for favorable ratings were the stakeholders that benefitted the most. The case study also mentions that Moody’s charged 11 basis points ($11 for every $10,000 in value) for RMBS (residential mortgage backed securities) due to the complexity of the security, which is higher than the typical 4.25 basis points for traditional corporate bonds which makes Moody an obvious stakeholder as well. The more RMBS’s that were issued and sold by lending institutions to investment houses, the more Moody would make as it rated each transaction. The investors, such as Merrill …show more content…
My opinion is that Moody’s has to bear some of the blame for the crisis as it was the one that provided the positive credit ratings to the investment bankers, as well as compensating them for issuing the loans. They did not rate the home owners or the mortgage lenders themselves; I view this as the trickle-down theory. Moody’s was the top of the pyramid and facilitated the ratings which drove the lenders to create the loans, which were sold the investment banks for cash to generate more loans to unsuspecting home