After Bristol Myers Squibb blamed the credit rating agencies for misleading it on the quality of mortgage-backed auction rate securities, one hedge fund manager remarked, "This is the land of the grownups," and sophisticated investors should do their own analysis. It was a fair point; any Fortune 500 company–and certainly Bristol Myers–has the wherewithal to analyze any investment. The fund manager is correct to suggest that Bristol executives should not be let off the hook, but wrong to dismiss a situation in which the two principal rating agencies–which have been essentially handed a duopoly by regulators–fail to even come close to properly evaluating the risk in instruments they themselves had a hand in designing.

If the subprime collapse were the agencies first miss, it would be upsetting, but perhaps not actionable. To the contrary, Moody's Investors Service and Standard & Poor's Corp. have arrived at the subprime debacle already bloodied by a long list of bad calls: the Orange County default, the popping of the tech bubble, the implosion of Enron Corp., just to name the most egregious.

So what is to be done? Congress has started hearings and the attorneys general of New York and Connecticut are rattling swords–just as they did after other meltdowns. To me, the situation is reminiscent of the conflicts of interest revealed in Anderson's relationship with Enron. Shouldn't the solution be the same? S&P and Moody's cannot be offering advice–for money–on the same investments that they then are being paid to rate.