If Moody’s et al can’t be trusted on rating subprime mortgages, what about things like school district financial ratings?

It reminds me a bit of credit card companies

As I recently blogged, financial rating agencies like Moody’s have apparently “pumped” the subprime mortgage market by rating subprime mortgages, for investment purposes, of being of higher investment grade than they really actually are.

Well, this got me to wondering: what if Moody’s and other folks do something similar for local governments, like cities and school districts?

At both my current newspaper and the previous one, the local school district had its rating upgraded after floating a bond issue. Arguably, that’s a temptation to do a number of things, whether urging voters to float a new issue at lower rates or cheaper bond insurance costs, borrow off maintenance and operation funds in the school district equivalent of certificates of obligation (as the current school district did when hurricanes Katrina and Rita blew its original cost estimates out of the water), or otherwise look at additional debt ideas.

Moody’s doesn’t do its work for nothing or in any way out of the goodness of its corporate heart. I’m no financial guru at all, so I don’t know who pays Moody’s (or anybody else) for rating services, but somebody does. Depending on who, I’m sure there’s some sort of conflict of interest floating around here.