Moody's president sees unprecedented illiquidity

By Richard Barley

LONDON (Reuters) - The credit market is experiencing an unprecedented loss of confidence due to the lack of transparency over where exposures lie rather than underlying credit quality problems, Moody's Investors Service President Brian Clarkson said on Thursday.

"I've been in the marketplace for 20 years ... what we're experiencing is an extreme lack of confidence and lack of liquidity. I have never seen this before," Clarkson told Reuters in an interview. "A lot of it has to do with transparency: it's not clear who owns what."

There are also questions over valuations of illiquid securities, he said, although not necessarily from a credit standpoint. Some structured vehicles -- such as the Cheyne Finance fund run by British hedge fund Cheyne Capital Management -- have been forced to sell assets due to losses even though the securities they hold have not been downgraded.

"It's not that a lot of the things people are holding aren't money good, they are. If you hold them to maturity they will pay interest and principal on a timely basis."

Ratings agencies have come under fire for not being quick enough to react to the problems in the U.S. subprime mortgage market that have roiled equity and credit markets in July and August.

In recent months they have downgraded hundreds of securities as mortgage defaults have proved higher than expected. That has led to widespread falls in prices for asset-backed securities whether linked to subprime or not as investors have shunned risky structures.

The European Commission said in August it will review the voluntary code used by the agencies, and French President Nicolas Sarkozy said questions should be asked about the role of ratings agencies in the latest crisis.

TOO QUICK AND TOO SLOW