Logos of rating agencies Moody's, Fitch Ratings, and Standard & Poor's
Logos of rating agencies Moody's, Fitch Ratings, and Standard & Poor's - 
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Kai Ryssdal:Congress has entered what you might call the "Wizard of Oz" phase of the financial reform bill. That bit where the guy goes, "pay no attention to the man behind the curtain." Or whatever the line is. House and Senate negotiators have started meeting behind closed doors -- or behind a curtain -- to hash out what's going to be in the final bill. And that might not be quite as tough as people had expected, especially on the big three credit-rating agencies. Fitch, Moody's and Standard & Poor's put overly rosy seals-of-approval on questionable bonds. Did so through the whole financial crisis. Regulators have been pressuring them to be more honest with investors -- except, apparently, when it comes to the risk that certain countries could go bankrupt.

Our senior business correspondent Bob Moon reports European officials would rather not hear the bad news about their own credit worries.

Bob Moon: You could call it "revenge of the ratings agencies." European officials have accused them of helping conceal risky private lending. But yesterday, Moody's downgraded Greece's credit rating to "junk." And now, some of those very same critics are hopping mad that the ratings agencies are being so straightforward.

MIT economist Simon Johnson finds it ironic.

Simon Johnson: If they don't downgrade you, they're going to be criticized for being slow to understand what's going on, and if they do downgrade you, they supposedly destabilize the situation.

In France today, the European Commission's finance chief blasted the Moody's downgrade as ill-timed. A German official called it unwarranted. And a Greek newspaper labeled it "sabotage." But at Yale University, corporate law professor Jonathan Macey says they can't have it both ways.

Jonathan Macey: They want the credit-rating agencies to be an early warning system for problems, but only problems in the private sector. Problems in the public sector with sovereign debt, they want rating agencies to keep quiet about and keep ratings artificially high, so these governments can raise money more cheaply for themselves -- despite that they're incredibly irresponsible from a fiscal point of view.

European officials warned today they could revive the debate over regulating the agencies. That bothers MIT's Simon Johnson, even though he's been an outspoken critic of their role in the financial meltdown.

Johnson: I think the credit rating agencies definitely need a hard look, particularly with their role vis-a-vis the too-big-to-fail banks. But the European Commission is engaged in intimidation at this stage, and they should just stop doing that. That's quite inappropriate.

For its part, Moody's says its downgrade was justified by lingering questions about the Greek government's ability to pay its heavy debt.

I'm Bob Moon for Marketplace.