Caught with their pants down?

"An institution run by a bunch of bureaucrats who couldn't run a corner candy store is not necessarily a bad credit risk," ran one particularly good rebuff from a defensive Moody's executive in late 1997. It was not a vintage year for the credit-rating agencies in Asia.

There is no question that a re-rating of Asian credits was in order. But both Moody's Investors Service and Standard & Poor's (S&P) are open to criticism over the way events overtook them. Investors carp that as recently as September they bought $1.5 billion of Korea Development Bank bonds when the state-backed issuer was a highly rated A+/A1 - in other words a safe credit. Presumably, says one investor, the long-term ailments that dog the Korean economy today were just as bad in September. If the agencies had done their job, spotted them, and reflected them in their ratings a lot of international...