Yesterday we talked a bit about this lawsuit bubbling around where some investors are suing Moody’s and S&P for doing a not so great job rating some asset-backed SIVs called Cheyne and Rhinebridge. I said then that the rating agencies were probably pretty keen to avoid going to trial for negligence, because, well
Because … look, maybe the ratings agencies weren’t negligent in rating these things, maybe their models made sense at the time and were falsified by unexpected future events that no reasonable person could have predicted, but … I’m gonna guess that if this goes to trial they will look bad. I mean, they look bad already, no?
A reader helpfully pointed to a preview of what a trial would look like for S&P and Moody’s, in the form of this interview report,* filed by the plaintiffs in February, of former S&P senior quantitative analyst Kai Gilkes, who among other things says that their models made no sense at the time and he predicted that they’d be falsified by expected future events: Read more »