The record of the 'traditional' rating agencies is deplorable. Go back 10 years and you will not find them having called time on Enron's 'asset-lite' business empire, nor on any of the dozen or so large Enron wannabees that had sprung up in emulation of that pioneering 'merchant energy' and which were all to go under in 2001-2002, basically for the same reason of gross under-capitalisation.
Cue for breast-beating, sack-cloth-n-ashes and, we were led to believe, soul-searching. Oh, how the agencies realised the error of their ways ! Oh, how they now saw the additional analysis that was required. Oh, how they would never let it happen again.
They told the energy market players that, unless they disclosed a great deal more, in particular about their proprietary trading and its inherent risks, they would be severely dealt with in the ratings department. And indeed, for a brief but glorious period in 2002-2003, a window of transparency was established, through which to view the relevant details of the (remaining) energy merchants' activities. Disclosure was made on a scale never seen before.
Or, indeed, since: for guess what ? Gradually the window misted over, and the window-cleaners stayed away. Soon we were back to the minimalist disclosures of yore. And what's to be expected, when the agencies receive their fees from the firms whose debt they are rating ! Don't like a rating you've been given ? Then go rating-shopping.
So there was never much chance that the vastly bigger and more complex banking sector was going to get proper scrutiny. As late as 3 days before it collapsed, Bear Stearns was rated single-A by both Moody's and S&P ! Such failures can only have contributed to the crisis.
An interesting development then is the fearsome Jules Kroll's proposal to set up a new rating agency. One trusts his 'sceptical' approach is as rigorous - and successful - as his reputation from the world of corporate security would imply, and as the world of finance sorely needs. A new business-model required, since one can't see a great deal of traditional business migrating their way ? Yes: he plans to seek fees from investors - a form of outsourced due-diligence.
Good luck with that. It has to come.