To put things lightly, the major rating agencies have taken it on the chin throughout the current credit crisis; speak to investors, and you'll find the agencies held in rare quarters, right next to used car salesman and mothers-in-law. It's not easy, usually, to engender that sort of disdain. Which makes the revelations in a published report Monday evening at the Financial Times more than a bombshell -- if true, these are the sort of things that aren't just bad. They're ugly. Allegedly, Moody's Investors Service incorrectly awarded Aaa-level ratings to billions of dollars' worth of so-called constant-proportion debt obligations, or CPDOs, due to a data coding glitch; but the really damning part comes from the assertion by the Financial Times that Moody's knew about the coding error in early 2007 and did nothing to fix it. It gets better. Or worse, however you want to look at this mess. The FT even goes so far as to imply that Moody's kept the flawed ratings in place because it wanted to protect its "second opinion" business, noting that Standard & Poor's had first rated the CPDOs in question at AAA. Officials at Moody's have said in a statement that they are taking the allegations seriously, and "conducting a thorough review" of the European CPDO ratings and process. S&P, for its part, asserted that its ratings of the CPDOs in question was arrived at independently, which begs a difficult question: if S&P rated the CPDOs at AAA, and Moody's was only able to do so subsequently through a glitch in coding, who's on first? And whose ratings were really wrong to being with? The implications for the ratings business of this particular mess could be very significant, sources that spoke with Housing Wire said on Monday. The "second opinion" business is one that has driven S&P and Moody's to the top of the mountain in the ratings business in more than a few structured financial products markets -- erstwhile third wheel Fitch Ratings has claimed for years that its more conservative rating criteria has cost it deals, and has even recently seen some market participants altogether ditch the agency on the heels of a downgrade that wasn't matched by at least one of the other two. "It may be just one class of securities in Europe," said one source, an MBS analyst who asked not to be identified, "but what it may end up doing is undermining confidence altogether in Moody's ability to remain independent in its ratings. This is a very big deal." With the allegations that Moody's didn't budge on its ratings after finding errors, keeping them in line with original ratings assigned by S&P, the implicit argument is that the agency didn't want to hurt its chances to play first or second wheel in the burgeoning CPDO business; that's the sort of stuff that goes right to the heart of what's supposed to be an independent rating process, Housing Wire's source said.