Jonathan Weil has a must-read column over at Bloomberg on Moody’s, the credit-ratings giant that is one of the biggest villains in the crisis.

We already know enough to condemn Moody’s and Standard & Poor’s and the like to the gallows, but Weil digs out an incredible assertion by Moody’s, defending against a lawsuit, that ought to speed up their demise. Here Weil gets into his batting stance:

Over the years, the credit- rating company’s constant refrain has been it’s an independent body that publishes its opinions accurately and impartially. Never mind that it gets paid by the same companies it rates. Moody’s says it can manage that conflict of interest.

“The market’s trust in and reliance upon Moody’s” are part of the “raw materials that support our business,” the company said in its 2005 annual report. “Independence. Performance. Transparency,” it went on. “These are the watchwords by which stakeholders judge Moody’s.” Moody’s also cites its code of professional conduct, through which it seeks “to protect the quality, integrity and independence of the rating process.”

And here Weil knocks it out the park:

Now compare that with what Moody’s told a federal judge in New York last September in response to accusations made in a shareholder lawsuit, which said Moody’s claims of independence were false.

“Generalizations regarding integrity, independence and risk management amount to no more than puffery,” Moody’s said in court papers. As such, alleged “misstatements of this nature are insufficient to sustain a claim under the securities laws.”

Wow. Moody’s defense is that the reasons the capitalist system believed in it so much that it depends entirely on it—these guys, remember, have the power of life or death over companies, and countries, when they can downgrade their debt—were just marketing hooey.

Which is true. But now they tell us?

Weil again on this disgrace:

For all the toxic mortgage-backed securities and structured- finance garbage that Moody’s rated as AAA, I never imagined Moody’s would use the word puffery to characterize the principles it brought to the job of grading investments that wind up in the portfolios of retirement funds and money-market accounts. It would be like the pope revealing that his belief in God was just fluff, or Mister Rogers complaining that small children were awful to be around.

Or Alan Greenspan saying that markets aren’t so awesome after all. Err.

But the company wants to have it both ways, of course. Don’t believe what they told the court! Nooo!

Even worse was the way a Moody’s P.R. man, Anthony Mirenda, tried to talk his way out of the company’s doublespeak.

“To clarify, the word ‘puffery’ is a legal term that was used to describe a category of statements that cannot be the basis of a lawsuit,” Mirenda told me. “Our legal team’s use of that term does not suggest that these statements are in any way false and does not in any way diminish Moody’s long-standing commitment to the integrity and independence of our ratings.”

Uh, right. Just to be sure, I asked Mirenda if what he told me was puffery. “No, that statement is not puffery,” he said. Somehow, Moody’s statements about integrity and independence are puffery when the company is writing to a judge, yet not when its spokesman is talking to a nosy journalist.

This piece ought to be required reading in Congress, the administration, newsrooms—everywhere. If this doesn’t sound these guys’ death knell, I don’t know what will.

Great work by Weil.


(If you haven’t read our Audit Interview with Weil from November, go check it out.)

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu.