It appears that Congress is getting ready to bash the rating agencies. We’ve seen similar things with real estate appraisers, though more at the local level.

What we are seeing here is a basic failure of a largely unregulated part of the market. Moody’s, S&P, and your local appraiser are all in a similar situation. If they look too closely, their customer will go to another appraiser or rating agency, hence you have unrealistic ratings on securities and unrealistic appraisals on houses.

The financial markets cannot police themselves.