Moody’s, one of the world’s best know and silliest named credit rating agencies, is in for a world of hurt as computer errors are being linked to the causes of the credit crunch.

Moody’s and Standard and Poor’s were on the chopping block last fall when many of their top notch credit instruments began to default. Even after it was revealed these these ‘sub-prime’ loans were full of dodgy mortgage debt, they continued to give them the best ‘AAA’ ratings.

These top Aaa ratings were reserved for the best guaranteed and most stable of mortgage and credit loans. Ones that were supposed to be paid back without any problems.

The Financial Times originally reported that as early as 2nd quarter 2007, many Moody’s employees were aware that these debt obligations should have been rated more than 4 levels lower. Moody’s maintains ‘a computer error’ caused the mistake from being rectified sooner.

But that doesn’t explain why all the other agencies followed suit, unless they were all in cahoots with each other? I’m not one to speculate conspiracy theories, but there is definitely something strange going on with these rating agencies. They’ve been under a lot of close inspection lately, and it only seems like a matter of time before something other than some vague ‘computer error’ explains why the whole credit rating market was so slow to react in a time of crisis.

Rabble rouser and Senator Charles Shumer from New York has been vocal about these guys for a while. According to an article in Bloomberg, Shumer urged the SEC to investigate the matter, saying:

“These revelations are indicative of a culture of shirking responsibility that must end. I urge you to fully investigate this matter and impose appropriate sanctions on Moody’s for their failure to disclose their ratings errors.”

Schumer said the incident shows credit raters lack effective controls. He urged the SEC to make sure its rules address weaknesses and force raters to “immediately and fully disclose the nature of their errors to the investment community.”

Shirking responsibility indeed! If it’s revealed that these credit rating agencies had nefarious reasons for reacting slowly to the growing crisis, let’s hope we see some heads roll, figuratively speaking of course.

Were the credit agencies just unsuspecting pawns along for the ride or were they duplicitous partners behind a failed credit scheme? Let us know your take in the comments section.

Bloomberg: SEC Should Investigate Moody’s, Consider Fines, Shumer Says, May 21, 2008