Congress Finally Clues In that the Rating Agencies Share Blame for the Meltdown

I knew the rating agencies were messed up right when things first started to get bad. It seems that Congress is again a day late and a dollar short.

Once the crisis became apparent, Levin said, rating agencies failed to acknowledge the problems fast enough. That led to mass downgrades of billions in investments, shocking the financial system and triggering the crisis, Levin said.

"By first instilling unwarranted confidence in high-risk securities and then failing to downgrade them in a responsible manner, the credit rating agencies share blame for the massive economic damage that followed," the Michigan Democrat said.

The real bad part was that these agencies were taking higher fees for rating things like CDOs with tons of subprime mortgages. That meant that they were actively looking for more of these subprime filled CDOs to rate because they would make more money from them than rating a vanilla bond.

If the ratings agencies had any kind of spine they should have marked these subprime CDOs at the rating of CCC- and be done with it. That would have shut down the entire process right before it got started. The problem is that they made most of their money from bankers who wanted to sells these CDOs and a CCC- rating would be a death blow. The bank would also be less inclined to deal with that agency as well. So the agencies were pressured into making these things investment grade as long as they contained "good" mortgages as well.

If there was any argument for reform these companies need to be turned into to pseudo-governmental entities. Or they can simply fold them into the FED as an independent Debt Ratings Agency or something similar. Their conflict of interest is one of the chief causes of the financial meltdown and should they should change so they get rid of that stain. Congress should have solved this problem in 2006 or earlier and we could have actually nipped this entire mess in the bud.