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Moody’s Investor Service

Moody’s Investor Service has been the leading source of credit ratings, risk analysis and economic research for 100 years. Founder John Moody began his enterprise in 1900 as a publication containing statistics and information on financial stocks and bonds. Later, he adapted to extend his advisory services to businesses, offering industry analysis aimed at minimizing investment risk. During the Great Depression, Moody’s really established itself as a reliable source when bond default rates went up but Moody’s highest-rated bonds made all their payments. During the seventies, the Moody’s business model changed slightly again, offering ratings at a price. The idea was that calling in an objective rating service would reflect favorably upon businesses.

The primary job of Moody’s Investor Service is to provide ratings on stock products, bonds and financial commodities. Investors (either individuals or businesses) who wish to sink their dollars into something usually check the rating system first before deciding how much to invest or where to put their money. In addition to investment advisory services, Moody’s also “publishes investor oriented credit research, including in-depth research on major debt issuers, industry studies, special comments and credit opinion handbooks,” www.moodys.com reports. This information often affects buyer purchasing decisions, such as when to buy a new automobile, when to buy real estate or what sort of investments they should sell off.

Moody’s Investor Service does not have an entirely clean slate, however. One of the problems, NY Times writer David Gillen points out, is that “Dominant agencies like Moody’s and Standard & Poor’s are paid by the companies whose securities they are evaluating. Under this so-called issuer-pay model, the industry maximized its profits at investors’ expense, and, in the process, imperiled the entire financial system” (6/4/09). In the future, we are likely to see a shift in advisory services to improve the legitimacy of the ratings to a more unbiased system.

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