by Jacob Goldstein

The ratings agencies' number came up today in Washington, as a Senate committee dug up a bunch of old emails and called in execs from S&P and Moody's to testify at a hearing.

The material is familiar stuff — basically, the committee paints a picture of ratings agencies who were looking to keep the banks happy by giving them high ratings on mortgage-backed securities issued during the boom.

Still, some of the details are pretty good.

From a 2005-vintage email:

Screwing with criteria to 'get the deal' is putting the entire S&P franchise at risk — it's a bad idea.

In another email, written in 2006, an S&P employee managed in the span of two sentences to use an emoticon as well as the phrases "monster" and "house of cards":

 

Rating agencies continue to create and even bigger monster - the CDO market. Let's hope we are all wealthy and retired by the time this house of cards falters. :o).

In 2007, after things had started to fall apart, a Moody's employee wrote:

This is horrible from a ratings and risk management point of view; perhaps the biggest credit risk management failure ever.

The ABACUS deals (CDOs in the same family as the Goldman Sachs deal at issue in the SEC lawsuit) — also pop up in the emails.

...a known flaw not only in that particular ABACUS trade, but in pretty much all ABACUS trades (which between the three of us were all rated by the same person ... who neglected to catch other important criteria issues ... or ignored them after being told to correct them by Team Leaders and business managers).

(The email was written well before the CDO in the SEC case was created, by the way.)

Here's how Moody's current CDO framed the company's behavior in his testimony today:

In short, Moody's did see the escalating housing prices and the loosening of standards in subprime lending practices, we published on these observations, and we incorporated our more unfavorable views into the way we assigned ratings. However, as I said earlier, neither we — nor most other market participants, observers, or regulators — fully anticipated the severity or speed of deterioration that occurred in the U.S. housing market or the rapidity of credit tightening that followed and exacerbated the situation.

An S&P exec testified that "From 2005 to 2007, through its publications, S&P repeatedly and consistently informed the market of its concerns about the deteriorating credit quality of RMBS transactions."

For more on the role of the ratings agencies, listen the Planet Money-This American Life episode The Watchmen. And here's coverage on today's hearing from the WSJ and Bloomberg.