ALL BUSINESS: Credit-rating agencies still need ample staff

Credit-rating analysts have been sharply criticized for failing to properly assess the risk of mortgage-backed and other complex debt securities. That doesn't mean we don't need them doing the job.

While Wall Street cheered Moody's Corp.'s better-than-expected earnings this week, that overshadowed news of what helped the company turn in those results: A big reduction in its compensation expenses.

Moody's, which didn't return requests for comment, paid out less in bonuses and cut its employee headcount in the first quarter. Poor timing for a company that needs a strong staff to thoroughly analyze the issues it is required to rate.

It would be easy to argue this the other way: Analysts at rating agencies including Moody's, Standard & Poor's and Fitch Ratings missed the mark before so why should anyone want them to stick around now.

They've been attacked for their bad guidance on the investment risks of mortgage securities, where triple-A rated securities were considered to be safe but turned out to be far from it. That has led to more than $200 billion in asset-related write-downs taken by banks and financial firms over the last year.

U.S. senators during a hearing in Washington on Tuesday suggested that rating agencies' government licenses should be suspended if they consistently give ratings that turn out to be inaccurate.

Sen. Richard Shelby of Alabama, the senior Republican on the Senate Banking Committee, compared the rating agencies to doctors. "If they're incompetent, they jerk their licenses," Shelby said, adding that by being "consistently wrong" on mortgage investment risks, credit rating agencies have "contributed greatly to the financial debacle we have today."

All true. But it's even more important now for the rating agencies to be exhaustive in reviewing issues they have an obligation to cover. They've got to get it right to assuage fears about risk that have wreaked havoc in the marketplace.

Remember, credit ratings don't just affect big banks' mortgage investments. If the investment side of the mortgage business is dead, that leads to fewer loan originations, meaning prospective home-buyers can't get mortgages to buy houses, which then keeps home prices depressed.