The Goldman Sachs (NYSE: GS) news to a certain extent drowned out a lot of other bad news, like the fallout from the recent hearings about credit ratings agencies. Executives from Standard & Poor's and Moody's presented an unflattering portrait of the agencies shocking zeal to hand underwriters whatever ratings they wanted. There was a lot of gaming and some dubious practices going on. The mortgage-backed business was like manna from heaven for these firms. But they are facing the consequences now in the form of massive litigation that represents a real threat to their business.

In Congress, there's an effort underway to impose actual liability on these firms, if they cannot show they performed adequate due diligence. Some think the industry could be doomed. What we really need is a whole new business model for the way securities get rated. The pay-for-your-own-ratings model is clearly not working, when the raters have every incentive to act in way to keep the fees flowing.

There's been some talk of a switch to a  system in which the investors pay. But the Financial Times notes that too is not perfect. Investors have their own agenda. It's fair to say more competition would help, but that's hardly a panacea, when they are all clamoring to work with the same issuers and banks. Is there another solution?

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