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Norb Vonnegut
Norb Vonnegut
"If anybody can turn international finance and hedge funds into a riveting thriller, it's Norb Vonnegut." (Jeffery Deaver) When the money talks…I listen. And I write about what happens behind the scenes in the bare-knuckled world of finance. THE TRUST, THE GODS OF GREENWICH, TOP PRODUCER.


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Posted in Business / Finance / Investing

Just Fix It

Oct. 11, 2009 1:10 pm
Categories: Acrimoney
Keywords: None

Grove O'Rourke here.

For years I have used municipal bonds to decrease the volatility of my clients' portfolios. And inside Norb Vonnegut's novel, Top Producer, munis work well. My clients have never lost money on bonds. But my clients, like me, are a works of fiction.

Yesterday, I took a few minutes off from book tour to read Gretchen Morgenson's article in The New York Times, When Bond Ratings Get Stale. She reported:

Municipal bonds are an important part of many investors’ portfolios; two-thirds of the transactions in the $2.7 trillion market are by individual investors, either in their own accounts or in mutual funds.

Yet, as Mr. McCleskey warned in his letter, “While a few very high profile/frequent issuers (City of New York, etc.) were receiving some periodic reviews, the vast majority had received none — in some cases there were bonds which had been outstanding for 10 or 20 years but which had never been looked at since the original rating.”

Mr. McClesky served as the head of compliance at Moody's from April 2006 until September 2008. He knows his material. And his testimony—that credit analysis is not reviewed on a regular and systematic basis—makes me crazy. Since when do rating agencies have the right to go on autopilot?

Talk about a betrayal of trust.

Moody's rates more than 29,000 issuers according to Morgenson's article. Clearly, the sheer size of that number makes periodic reviews a formidable challenge. No doubt they would eat management time and cost big bucks.

I don't care.

Bond ratings are critical to financial advisers. Even fictional ones like me. I plan to review my clients' bond portfolios, cull out the bonds where Moody's is the only issuer, and evaluate whether to sell. I bet other funds managers will be doing the same.

Just fix it, Moody's. Just fix it.

Thinker's Post
Norb Vonnegut
October 12, 2009 at 10:55 am
Scott, fair point. "Testimony" is the right word. I've made the change because you are to be commended for your report to Congress. So many investors depend on the ratings of Moody's and other agencies. You added to the transparency of our financial infrastructure, and I think all investors are grateful. Me included. Thank you for comment on this blog. Question: Do the agencies have the infrastructure to monitor all their ratings? Moody's rated 29,000 issuers according to the company website and the New York Times article.
Scott McCleskey
October 11, 2009 at 10:38 pm
I'm not entirely sure I would agree with the word 'admission', as it makes me sound culpable for something I brought to the attention of the SEC, and testified about to Congress.
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