Rather than stick your money under the mattress, invest in mattress companies. This seems to be the conclusion from Moody's credit rating agency, which rated mattress companies as the consumer-durables sector least vulnerable to a reduction in consumer spending due to a recession. Not surprisingly, recreational vehicle and products companies are the most vulnerable to a sustained slowdown in consumer spending.

How much will consumer spending decline over the next few months? That is the trillion-dollar question. Moody's recently downgraded several large home builder companies. Given the slowdown in the housing construction sector and the tightening of credit for home mortgages, such a downgrade was hardly surprising. Now Moody's is examining the debt maturies of consumer-durables companies in comparison to their revolving credit facilities for 2008-2009. Whirlpool Corporation (NYSE: WHR), Brunswick Corporation (NYSE: BC) and Dixie Group (NASDAQ: DXYN) all have substantial debt maturities in the near future, but Moody's did not downgrade those companies, as they have enough in their credit facilities to weather a slowdown. Other consumer-durables companies will not be so fortunate.

A couple days ago on our sister site WalletPop, forensic accountant Tracy Coenen asked readers for tips on how to help her lower her credit score. Her reasoning? Part of the White House's bailout plan involves freezing the interest rate on adjustable rate mortgages for five years, but only for borrowers who meet certain criteria. One of those criteria is having a FICO score below 660.

Apparently other people are thinking like Tracy. According to MarketWatch:


Should we fault people for trying to game the system? Heck no! That's what systems are for. If multi-billion dollar companies can work out ways to avoid paying any taxes at all, why shouldn't you lower your credit score to save some money on your mortgage?

The fact that the bailout appears so easy to manipulate is really indicative of how stupid it is. Does it make sense to offer a low interest rate only to people with a poor record of paying back loans? Isn't that the exact opposite of the entire point of credit ratings?

Zac Bissonnette is an associate editor with WalletPop, AOL Money & Finance's new personal finance blogsite that covers the financial issues that are important to you in a fun, interesting way.

Shares of Moody's (NYSE: MCO) have plunged as the ratings agencies become Public Enemy No. 1 in the quest for a villain in the subprime fiasco.

Now Forbes is wondering (subscription required) about Fair Isaac (NYSE: FIC), a rating agency for individuals that uses a complex algorithm to calculate a FICO score. As evidenced by the rising foreclosure rates on loans that were given based on people's FICO scores, it seems that the algorithm may not have had as much predictive power as they thought.

According to Forbes, "In January a contrite Fair Isaac, along with bond rating agency DBRS (formerly Dominion Bond Rating Service), produced a study that revealed some of FICO's limitations. It found, for instance, that a borrower with a high credit score is just as likely to default on a no-money-down mortgage as a lower-scoring borrower who puts down 40%. So two portfolios with identical average FICOs can behave very differently."

In other words, the average FICO score of a portfolio of loans is not an accurate predictor of risk -- a huge problem because that's exactly what many investors assumed it was.

Now Fair Isaac seems to be backing off the value of its ratings: According to a vice president at the company, "FICO scores an individual's risk over time. It's not an assessment of the riskiness of the loan made."

If a FICO score can't be used to asses the riskiness of a loan, what good is it in determining whether to lend to someone?

In the wake of the blow-ups of numerous quant funds and scandals involving rating agencies with complex algorithms, it looks like investors would do well to step away from the computer and do some old-fashioned hands-on due diligence.