While with Citigroup, Mr. Peterson established a reputation as a leader who is able to handle government scrutiny, improve business standards, and repair damaged reputations.

Mr. Sharma will be staying with the company as an advisor until the end of the year. The reason given for the change is that Mr. Sharma, who joined the company in 2006, is “ready for new challenges.”

During his tenure, Mr. Sharma separated S&P’s data, pricing and analytics business from its rating business. No mention was made in the announcement about how S&P downgraded the U.S. debt under Mr. Sharma’s watch, a move that was stridently criticized by the administration and was not followed by the other two major ratings agencies. Nor was there any mention of the ongoing Justice Department’s investigation into whether S&P improperly rated mortgage-backed securities while Mr. Sharma was president.

The claim is that the banks misrepresented the quality of the securities. The FHFA issued 64 subpoenas last year to see the underlying documents for the mortgage-backed securities in which Fannie and Freddie had invested. The purpose given for the subpoena was to ascertain whether banks and other financial entities were liable for losses suffered by Fannie and Freddie, losses covered for by the U.S. Treasury.

Maybe we can also ask the buyers and managers of Fannie and Freddie what due diligence they did at time of purchase.

Mr. Elkin agrees that the SEC’s mortgage-backed securities investigation predates the downgrade; nonetheless he questions whether these actions by the SEC had, “…nothing to do with the actual decision by S&P to cut Treasury’s rating. Administration officials and its SEC appointees would never dream of retaliating against a rating company for honestly expressing its constitutionally protected opinions. We know this because, though they will not say anything for attribution, they say so in all the stories reporting on their inquiries.”

Mr. Elkin says the SEC’s refusal to say anything for attribution is “baloney” and urges all the rating agencies to, “…withdraw its rating of U.S. government and agency debt. They should explain that government investigations render them unable to express an independent opinion. As a result, the government will end its tenure as a AAA-rated credit risk, not by having its ratings reduced (except for S&P), but by having them eliminated.”

Courtney Comstock of Business Insider quotes a key passage from the lawsuit: “Because the information that Goldman provided or caused to be provided [to ratings agencies] was false, the rating were inflated…[and] also that Goldman Sachs knew, or was reckless in not knowing, that it was falsely representing the underlying process and riskiness of the mortgage loans…because Goldman’s longstanding relationships with the problematic originators, and its numerous roles in the securitization chain, made it uniquely positioned to know the originators had abandoned their underwriting guidelines…[and because] as a result, the GSEs paid Defendants inflated prices for purported AAA (or its equivalent) Certificates, unaware that those Certificates actually carried a severe risk of loss and inadequate credit enhancement.”

Because Goldman Sachs was not the originator of the mortgage loans, where the actual fraud took place, Ms. Comstock believes that Goldman Sachs has a strong defense. However the suit claims that Goldman Sachs was updated daily on the number of defaults but chose to securitize these failed loans anyway. Ms. Comstock also believes that Fannie and Freddie Mac were “sophisticated investors” who should have done their due diligence. To this the FHFA claims that the substandard loans were hidden; there is no way they could have known.

Good plan. Use the laws and rules that exist. If there is fraud, prosecute!

Taylor also claimed that the ratings agencies’ power is overstated. Instead the lawmakers should focus on the business press. Reuters reports Taylor saying, “It’s overstated, the power we have in markets. A lot of that comes from the press. The financial press in particular loves the idea we wave our wand and magic things happen.”

Currently countries are given 12 hours to challenge any factual errors, however the Europeans are exploring the possibility of expanding that to three days. The politicians are looking for a longer grace period to avoid wild swings in bond prices while bailout packages are being negotiated.

This is pure folly. You can never regulate volatility.

The rule requires that credit rating agencies share confidential loan-level arranger-provided information with other rating agencies on a password-protected website. Likewise, any verbal conversations, including phone calls and texts, must be recorded and documented on the website.

Rui Pereira, head of U.S. residential mortgage-backed securities at Fitch is quoted by Reuters as saying, “People are so concerned about litigation and risks that the operational review and ratings process has become a lot more complicated…Any questions about a deal must be e-mailed, and sent ahead of time.”

Another senior analyst from a different rating agency told Reuters , “Communication is ridiculous…I call an issuer with a question and he says, ‘I can’t answer that. E-mail that question to me and I’ll get back to you.’ It was so easy in the past. You just get on the phone to discuss it. With 17g-5, you eventually get the information you want, but it takes the longest way to get there.”

Although the rule’s purpose was to promote an equitable flow of information and motivate unsolicited ratings, it hasn’t worked. Since the rule went into effect, no rating agencies have issued an unsolicited rating.

Bill Gross, managing director of PIMCO, the world’s biggest bond investor, said that rating agencies “no longer serve a valid purpose for investment companies” if they do not become more nimble than they are currently.

Bob Pozen, chairman of MFS Investment Management, said that having an internal system allowed them to change direction more quickly. Commenting on other investors who rely on the slower-moving rating agencies, he said, “they can’t change a rating until the objective evidence becomes compelling. We look at objective evidence but also trends and market judgments.”

In spite of these shortcomings, Mr. Pozen also asserted that the rating agencies still served an important role as a longer-term reference for investors. MFS and PIMCO prove my point. Let’s delete the use of ratings from the federal register. You can invest without an NRSRO. Why is this so hard to see?

“I see this as another version of due diligence. You really need to look at what the facts are, and then you rate them, which is what we’ve done for years but in a different context.” Kroll told National Public Radio.

Kroll says his new firm will apply the same principles of due diligence he employed in building his international financial investigative agency. He plans on going beyond simple mathematical models to look more closely at the properties and mortgages in question, for example, something he says the major rating agencies failed to do. “There’s been virtually no skepticism, no fact-finding. (By current ratings agencies.) It’s been the acceptance of what’s been presented by people seeking to raise money.”

The company is set to release its first ratings in July.

Let’s hear it for Kroll! The market is solving its own problems with ratings. If Kroll is better, everyone will use them.

Mr. Buffett said rating agencies “made the same mistake” that everyone else did in overvaluing the health of the housing market. However, he countered, Moody’s — as well as McGraw-Hill, Standard & Poor’s and Fimalac SA’s Fitch Ratings — possess strong pricing power and require little in capital needs.

“There is obviously a backlash against rating agencies,” he said. “If they are not forced to change the whole structure around them … in some dramatic way, [they are still] a pretty darn good business.”

Mr. Buffett also pointed out that Berkshire has “never paid any attention” to credit ratings for bonds. “We don’t think we should farm out — outsource — investment judgment,” he said.

David Weinfurter, a spokesman for Fitch Inc., defended his company by saying it had made its models public in response to demand for increased transparency. He also pointed out that a committee, not the models, ultimately assigned ratings.

“There’s a bit of a Catch-22 here, to be fair to the ratings agencies,” said Dan Rosen, a member of Fitch’s academic advisory board and the chief of R2 Financial Technologies in Toronto. “They have to explain how they do things, but that sometimes allowed people to game it.”