Moody's, UBS Downgrade Each Other. Eyes Roll.

Last Updated Apr 10, 2008 12:10 PM EDT

To get a snapshot of how messed up things have gotten in the financial industry during the credit crunch, consider this little parable in the news Wednesday.

UBS analysts issued a report on the firms that rated the subprime mortgage. The analysis seems sound enough. However, it comes only a year or two too late. These were the same ratings agencies - Moody's, Standard and Poor's, Fitch - that gave many a high five to a lot of the securitized loan packages that later blew up, nearly sinking the entire industry.

Moody's comes up by far the biggest loser.

Moody's assigns Caa2 or lower ratings to just 12 percent of the 292 bonds underlying benchmark Markit ABX indexes that UBS analysts expect to default. Both Fitch and Standard & Poor's tag 57 percent of the bonds with equivalent rankings, according to a report from the New York-based analysts yesterday. A rating of Caa2 or CCC is eight levels below investment grade.
Just how bad is a 12 percent success rate? Bad enough to make a 57 percent success rate look excellent. And 57 percent is terrible.

But Moody's isn't the kind of dozy watchdog to take that kind of criticism sitting down. On the very same day, it downgraded UBS' credit rating. (And Fitch did to, the ingrates.)

All of which is a simple reminder to unplug your market research and buy in a dartboard instead.

  • Kevin Kelleher

    Kevin Kelleher writes a regular stock column at TheStreet.com and is a contributor to Wired, Popular Science, and GigaOm. He has previously worked as a reporter and editor at Bloomberg News, Wired News, and The Industry Standard.