Moody's and S&P need to be reined in

Whether the New York ruling marks a turnaround or turns out to be a mere blip, we will know in a few years.

But even with that victory, investors will have a hard time winning. They have to show specifics about who did what to produce the faulty assessments, precisely how they themselves were harmed and sometimes whether the firm had an obligation to them.

As part of its financial-services overhaul package, the House passed a bill in December that will make it easier for investors to sue rating companies.

The legislation would also require greater transparency, to use the buzzword of the decade, and authorize the Securities and Exchange Commission to write tougher regulations on the firms.

Senate Next

It isn't a cure-all. And we haven't seen the Senate version, which Christopher Dodd, Democrat of Connecticut, says he will introduce next week.

And however crucial to overall reform the rating companies are, the hot debate over the larger bill has focused on whether to create a consumer agency and where to locate it. Proposals fly about Capitol Hill to tax executive bonuses at bailed-out banks or to charge fees for securities trades.

But putting the reins on the rating companies? That starts on page 1,034 of the 1,279-page bill and gets scant attention in official analyses of the legislation.

In the meantime, the battleground is the courts. The latest Connecticut suit gets fairly specific.

It quotes a 2004 exchange, in which a senior S&P executive complained to managing directors in the firm's mortgage-backed securities group about losing a “huge” deal to Moody's because S&P had stiffer requirements for issuing a high rating.

“We think the only way to compete is to have a paradigm shift in thinking, especially with the interest-rate risk,” the unnamed executive said.

Oh yes. Employment opportunities for securities defense lawyers abound.

Unfortunately, there is no specific law that allows anyone to sue a company for helping trigger a worldwide recession.

But these suits come as close as they can to attempting to hold the rating firms liable for that.

It's about time somebody did.

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