A Financial Times story has been doing the email rounds in the markets over the last couple of days that points to a colossal stuff-up on the part of the financial ratings agency Moody’s. It seems that a programming error in the model they used to rate “Constant Proportion Debt Obligations” (CPDOs) meant that they assigned a rating of AAA to billions of dollars of securities which they should have rated A+, a whole four notches lower! To make matters worse, FT claims that when Moody’s found the error, they tweaked their rating methodology so that they wouldn’t have to lower the ratings. Shortly afterwards, of course, the credit bubble burst and the price of CPDOs collapsed. Whoops!