A former senior analyst of sub-prime mortgage bonds at Moody's has filed 80 pages of personal comments with the SEC on its proposed rules to "reform" how rating agencies operate. I didn't read it all; there was enough in the first few pages to make me sick:
There was pervasive and effective management pressure for committees to issue ratings that were different from (usually higher than) those generated by the technical analysts. This had enormous practical consequences because if senior tranches had been rated Aa1, just one notch below Aaa, they would have been unmarketable.
The proposed SEC rules would confer even more trust in the managements of rating agencies.
The model used to evaluate risk assumed housing prices would rise 4% per year forever, and nobody involved was actually dumb enough to believe that.