Dean Baker: Moody’s Playing Dangerous Games With Public Pension Funds

The bond-rating agency Moody's made itself famous for giving subprime mortgage backed securities triple-A ratings at the peak of the housing bubble. This made it easy for investment banks like Goldman Sachs and Morgan Stanley to sell these securities all around the world. And it allowed the housing bubble to grow ever bigger and more dangerous. And we know where that has left us.

Well, Moody's is back. They announced plans to change the way they treat pension obligations in assessing state and local government debt.

Instead of accepting projections of pension fund returns based on the assets they hold, Moody's wants to use a risk-free discount rate to assess pension fund liabilities. This will make public pensions seem much worse funded than the current method.