We are seeing two things going on here.<\/p>\n
First, we have a crisis in confidence in the ratings agencies, best exemplified by the decision of state insurance regulators reviewing their reliance on ratings agencies<\/a>:<\/p>\n State regulators scheduled a hearing to review their reliance on ratings firms in grading insurers\u2019 financial strength and whether changes are needed after the plunge of top-ranked bonds exposed flaws in credit scores.<\/p><\/blockquote>\n If people no longer believe in ratings agencies, then they no longer have a business.<\/p>\n They business is quite literally a confidence game.<\/p>\n This, however is a long term problem.<\/p>\n The more immediate problem is that the Courts have finally got a clue, and determined that in the presence of evidence, email messages specifically, that these agencies were “putting lipstick on a pig,” that the ratings agencies can be held liable for fraud<\/a>, and that these opinions, which they sell not subject to 1st<\/sup> amendment protections.<\/p>\n There are clear indications, emails and the like, that the ratings agencies were deliberately issuing inaccurate ratings in order to boost market share and consulting income.<\/p>\n David Einhorn explains why the recent suit against the ratings agencies is so catastrophic:<\/p>\n