(From a train on my way to Normandy)

I have contended in print, speeches, and interviews since before the credit crisis began that #1 on a rather long list of culpable parties were the rating agencies. They were supposedly the independent, honest stewards of the investment world, tasked with making the children play nice in the sandbox. Everyone assumed that greedy bankers, brokers, salespeople, et al. were working hard at creating commissions and would bend or break the rules, if allowed. It was ever thus. But the rating agencies were the guardians of the rules. We now know they not only did not act as an honest judge, they were down in the dirt playing with all the rest of the guilty parties.

As usual, Matt Taibbi has done yeoman work over at the Rolling Stone, sussing out how just badly the rating agencies have behaved. Given the grievous collapses of various and sundry supposedly AAA subprime securities, I am not all that surprised at what went on behind the scenes to come up with those ratings. I always suspected it would be this bad when the lights were turned on. This is not "actionable" investment analysis, but it serves to warn us that supposedly neutral counterparties are not always that, and so at the end of the day we must do our own due diligence. That is a real cost in terms of time and money and why a total reform of the rating process should be undertaken. A truly independent voice that can serve as an impartial judge would be quite useful if it could be determined that they were truly impartial and following very transparent rules, with severe if not criminal penalties for not doing so. The fact that Moody's and S&P did not should condemn them to the outer darkness.