In an 80-page letter to federal regulators, a former Moody’s senior vice president says the firm systematically squelched its analysts’ private doubts to keep deals and profits flowing.
Moody’s managers intimidated analysts who stood in the way of favorable ratings, and its compliance department harassed employees who took an independent stand, according to the former analyst, William J. Harrington.
According to Harrington, a fundamental conflict of interest permeated the firm’s culture: Like other credit rating agencies, Moody’s is paid by the very companies whose securities it is supposed to grade objectively.
“Moody’s incentivized an analyst to accede to all items demanded by an external paymaster and to work to the paymaster’s schedule,” Harrington wrote.
“The goal of management is to mold analysts into pliable corporate citizens who cast their committee votes in line with the unchanging corporate credo of maximizing earnings of the largely captive franchise,” he wrote.
Repeatedly, Moody’s management ignored internal warnings that employees responsible for rating securities backed by home mortgages were “pumping out worthless opinions,” he wrote.
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