Business Insight Zone

Now, surely Moody’s didn’t mean to give worthless guidance about the securities it rates, and surely it’s not now warning of a blowup in the hedge-fund sector as a way of covering its own tail. Right? But you wouldn’t know if for all the mud being slung between Moody’s and players in the hedge-fund world.

Moody’s Warns of Potential LTCM-Scale Fund Collapse

Moody’s Investors Service fueled concern that the global credit crisis is worsening by speculating that a hedge fund collapse on the same scale as Long-Term Capital Management LP in 1998 is possible. [...]

Moody’s, criticized by policy makers and investors for failing to cut ratings on bonds backed by subprime mortgages until July when some securities had already lost more than 50 cents on the dollar, is drawing analogies between today’s credit crunch and the collapse that triggered the last bailout organized by the Federal Reserve. [...]

“I’m certain there is at least one major hedge fund out there at least as rightly concerned about a collapse in Moody’s as the other way around,” said Colin Negrych, a principal at Barclay Investments Inc., a broker-dealer in New York. “To see Moody’s make forward-looking negative statements about hedge funds, who may well be suffering in large part as a result of their reliance on Moody’s now evidently worthless ratings, is to witness the height of chutzpah.” [...]

But I guess that’s what you get when you sit in judgment on other firms at the same time that you mix it up in the markets yourself.

(Tip of the hat to pmarca.)