Plenty of blame has been pinned on the big credit rating agencies for the sub-prime mess. Just what went wrong at these firms. What can be done to stave off another disaster? That will be the topic of hearings on Capitol Hill this week. Lawmakers are expected to grill executives from Moody’s and Standard & Poor’s, two of the biggest agencies, before the Senate Banking Committee on Wednesday. Securities and Exchange Chairman Christopher Cox is also scheduled to testify. The House Financial Services Committee will follow with a hearing on Thursday.

The salient question is “have the firms failed investors by blessing complex mortgage-backed bonds and other products in turn for big fees”? The critics say the agencies were blinded by their close relationship with issuers and their eager pursuit of profits. Many say there is little Congress can do to overhaul the rating system, and in turn, restore confidence in the complex debt products that have exploded on Wall Street in recent years.

The rating agencies have responded to the criticism by contending that they only issue opinions about creditworthiness – and investors can choose to ignore their ratings. They contend that their ratings are not recommendations to buy, sell or hold a particular security. They simply provide a tool for investors to assess risk and differentiate credit quality.

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