Until the day Lehman Brothers declared bankruptcy, all three of the major credit-ratings agencies swore its debt was safe, rating it A or better. They rated AIG at AA. And they gave 75% of the $3.2 trillion of subprime mortgage securities iron-clad AAA ratings. Moody’s, S&P and Fitch were, in short, at the center of the credit crisis. Yet all are still profitable—and regulators aren’t touching them, Bloomberg reports.
Critics say the system is fundamentally flawed, because the agencies are paid by the companies they’re rating. Yet the system is so pervasive that reform will be difficult. Countless contracts, laws, and regulatory rules are built on the ratings. Even current federal rescue plans rely on them. “Few people respect the credit raters,” says one professor, but “we’ve become addicted to them like a drug.”