LyrArc Article Gist
Moody's revenue model before the early 1970's was based on charging for Moody's publications. This changed in the early 1970's when Moody's and other ratings agencies began charging for opinions. And in 1975 the SEC secured the ratings agencies positions by allowing banks to base their capital requirements on the ratings of securities they held. Before the early 1970's Moody's in the words of Thomas McGuire , a former director of corporate development who left in 1996, acted like a watchdog that regarded the financial markets as its turf and barked and growled when anybody it did'nt know came near it. And its founder Moody, took his mission seriously which gave the company its stern reputation as a safeguarder of the public's interest in the integrity and character of dealings in securities. McGuire was never happy with the change made by the SEC which relied on ratings as a form of regulation, because the ratings agencies would be able to sell ratings even if they failed investors and the public interest. He even states in a speech to the SEC in 1995, that the government regulators are inadvertently putting the ratings people in an improper position because they were ordinary people with ordinary motivations, and the government regulators would have to share accountability for any scandals that result when it let these ordinary people subject to the same pressures for profit and gain assume some regulatory duties. The rest of the story is one in which just such an ordinary person with pecuniary motives turned up in the form of John Rutherford Jr., who became CEO of Moody's in 1998, and focussed the entire company on profit in a way that it had never done before, even expecting each Moody's analyst to produce at least $1 million in revenue each year. In a business with its serious watchdog role that was never intended to be meant to be a purely profit business, but a private business run for profit but not for maximinzing profit, with the singular motive of its management in safeguarding fiercely its independence and integrity as its raison-de-etre.