WASHINGTON  Two whistle-blowers accused Moody's Investors Service of misconduct Wednesday — the latest public flogging the big credit-ratings agencies have endured since their flawed judgments contributed to a global financial crisis. But bashing the big three agencies — Moody's, Standard & Poor's and Fitch Ratings — might prove easier than fixing them: Connecticut Insurance Commissioner Thomas Sullivan says the current reform proposals in Washington just "dance around the edges of the real issues." The big three ratings agencies have drawn fire for giving their seal of approval — relied upon by banks, securities firms, insurers and investors — to thousands of real estate-backed securities that plunged in value when the U.S. housing market collapsed. "No one's more responsible for the crisis than S&P and Moody's," says Frank Partnoy, law professor at the University of San Diego. "They have been mis-rating for a long time now, starting with Orange County (Calif.) in 1994, which was rated AA right up until its bankruptcy, and Enron and now AIG, which was insolvent but still got high ratings." The Securities and Exchange Commission last year released internal rating-agency e-mails in which one analyst complained that her firm would rate a security even if it was "structured by cows" and another said: "Let's hope we are all wealthy and retired by the time this house of cards falters." The heat is rising: •Former Moody's manager Eric Kolchinsky told Congress on Wednesday that even this year the ratings agency broke securities laws by issuing credit ratings it knew were wrong. He also testified that analysts responsible for Moody's credit policy "routinely get bullied by business-line managers, and their decisions are overridden in the name of generating revenue." Joining Kolchinsky before the House Oversight committee was former Moody's senior vice president Scott McCleskey, who says the agency ignored him and forced him out in 2008 after he warned that its municipal debt ratings were outdated and unreliable. Richard Cantor, Moody's chief credit officer, acknowledged that the firm missed the depth of the real estate meltdown, but denied any wrongdoing; he told lawmakers that an internal review had concluded that Kolchinsky's allegations were "unsupported." •State insurance regulators, saying the agencies' ratings are unreliable, are considering creating their own non-profit rating agency under the auspices of the National Association of Insurance Commissioners. "The status quo is a complete failure," says Michael McRaith, director of Illinois' insurance department. "We're exploring all viable alternatives." •California Attorney General Jerry Brown two weeks ago issued the three firms subpoenas, saying he wanted to see if they broke state law by "recklessly giving stellar ratings to shaky assets that proved toxic to the entire financial system." •A federal court last month ruled that ratings agencies could not fend off investors' lawsuits by claiming that their ratings were protected as free speech under the First Amendment. •The Securities and Exchange Commission two weeks ago issued rules giving smaller ratings agencies access to information that would let them issue their own ratings and requiring ratings firms to expose securities issuers that tried to "shop around" for the highest ratings. •Congress is considering legislation aimed at reducing investors' reliance on the big three's ratings and making the agencies more vulnerable to lawsuits. A proposal by Rep. Paul Kanjorski, D-Pa., would drop federal rules that require banks and brokerages to rely on credit ratings when deciding, say, how much capital to set aside to cover a potential loss on an investment or loan. The rules, which amount to a federal endorsement of the agencies' work, have made the big three "a lazy and complacent" oligopoly, says Lawrence White, professor of economics at New York University. More controversially, Kanjorski's draft would hold all major ratings agencies jointly liable whenever any of them violated securities law — a provision intended to make them police each other. "The joint-liability provision is borderline surreal," wrote analyst Glenn Reynolds of the research firm CreditSights. Reynolds says the threat of litigation would do little more than scare potential competitors away from the ratings business. Other critics say the proposals leave the agencies' real problem largely untouched: They are paid by the firms that issue securities, not by the investors who eventually will buy them. So they have an incentive to build business by relaxing their standards. "No one has the incentive to apply truth serum," says Robert Johnson, director of the economic policy program at the Roosevelt Institute think tank. "You're dependent," Connecticut's Sullivan says. "You're rating clients who are paying you. To me, that is a little messed up." Sullivan also says the ratings agencies must get away from the "herd mentality" — where they upgrade and downgrade securities in lockstep. "You don't flip a switch and change (corporate) culture overnight." Gogoi reported from New York RATING THE FINANCIAL MARKETS | RATING THE FINANCIAL MARKETS | Story Critics say the three main credit-ratings agencies Fitch, Moody's and Standard & Poor's have too much dominance in financial markets. According to the Securities and Exchange Commission , the big three account for more than 98% of credit ratings. Outstanding credit ratings reported by the ratings agencies by ratings class in 2008: Credit-rating agency Financial institutions Insurance companies Corporate issuers Asset- backed securities Gov't, municipal sovereign securities Total ratings A.M. Best 3 6,129 2,696 54 8,882 DBRS 855 35 590 840 45 2,365 EJR 62 46 803 911 Fitch 79,125 4,871 15,865 72,278 787,781 962,920 JCR 155 32 559 68 85 899 LACE 18,000 100 10 246 58 18,414 Moody's 70,000 6,500 25,000 110,000 175,000 386,500 R&I 100 36 629 214 89 1,068 Realpoint 10,235 10,235 S&P 44,800 6,900 28,900 197,700 967,600 1,245,900 Total ratings 213,000 24,649 75,052 394,635 1,930,658 2,638,094 Source: Securities and Exchange Commission, June 2008 report Guidelines: You share in the USA TODAY community, so please keep your comments smart and civil. Don't attack other readers personally, and keep your language decent. 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