Real Subprime Scandal Is Ratings Firms, not Goldman 99% of AAA-rated subprime securities now junk By Rob Quinn, Newser Staff Posted Apr 26, 2010 5:48 AM CDT 8 comments Comments Raymond W. McDaniel Jr., Chairman and CEO of Moody's, N.Y., and Kathleen Corbet, former president of Standard & Poor's, testify before the Senate Subcommitee on Investigations last week. (AP Photo/Harry Hamburg) (Newser) – Goldman Sachs won't come out of the Senate financial reform hearings smelling of roses, but it's the much bigger stink coming from credit ratings firms that lawmakers should focus on, warns Paul Krugman. Emails released by the Senate subcommittee probing the financial crisis show how corrupt the system of credit ratings agencies has become, Krugman writes in the New York Times. A system originally intended to provide an honest assessment of corporate debt has become one where firms are hired to give toxic debt seals of approval Krugman writes, noting that a shocking 93% of AAA-rated subprime-mortgage-backed securities issued in 2006 have been downgraded to junk status. Current proposals for financial reform won't fix this corrupt system, Krugman writes. The only way to do so will be to change it so that the agencies aren't motivated solely by the desire to keep the business of bond issuers.