I don't think the financial crisis would have occurred, at least not to the degree it has, without the problematic credit ratings of the toxic securities -- fro

I don't think the financial crisis would have occurred, at least not to the degree it has, without the problematic credit ratings of the toxic securities -- from major ratings agencies like Moody's, Fitch, and S&P. This from the article catches my eye: The seeds of today's problem were planted long ago, and its forgotten history holds important lessons. In 1936, as part of reforms under the new Banking Act, the U.S. government mandated that federally regulated banks could no longer hold securities that weren't rated investment-grade by at least two ratings firms. I believe that could be re-worded like this, and essentially mean the same thing: In 1936, as part of reforms under the new Banking Act, the U.S. government mandated that federally regulated banks could no longer hold securities that weren't rated investment-grade by at least two [kindergarten kids with crayons]. Why are rating agencies, who appear to be unaccountable to anyone, given such a key role in banking law? This law appears to be in place to protect the stability of banks, but what happens if the rating measurement system is flawed? I was listening to comments made by Warren Buffet post crisis on the rating agencies. His position, to summarize, appeared to be, well, the agencies may not be perfect, but the market has need of their services, so we essentially need to have them. I'm not so sure this is the wisest course, at least not without some form of accountability added in. If individual investors can do their own research on investments, then banks can too. As the article points out: The record was so unreliable that it would be "still more responsible," Mr. Palyi growled, to "stop the publication of ratings altogether." An interesting read along with this article is another one entitled Bad Credit: How S&P, Moody’s and Fitch Helped Cause the Housing Bubble. http://www.bnet.com/blog/financial-business/bad-credit-how-s-p-moody-8217s-and-fitch-helped-cause-the-housing-bubble/5062 http://www.bnet.com/blog/financial-business/bad-credit-how-s... An excerpt: If large financial firms masterminded the scam, stuffing junk mortgages into securities, CDOs and other instruments, the credit agencies were their able shills, rubber-stamping whatever paper came their way with an investment-grade rating. As Sen. Ted Kaufman, D-Del., said this morning in a congressional hearing on the role of the rating agencies, “The big thing that was missing was the referees on the field.” Or more accurately, the referees were paid off. The ratings agencies business model is based on a flagrant conflict of interest — they’re paid by the firms whose credit they evaluate. That makes them vulnerable to pressure from investment banks and securities issuers, which naturally want a bullet-proof rating in order to attract investors.