But due diligence is not what rating agencies do.

Well, that's quite clearly true.

Whether they should have been doing it is, hopefully, something that will be decided in the course of a fair an honest criminal trial.

Rating agencies are just supposed to predict the odds of default relative to alternative investments, assuming that what they've been informed about underlying collateral is true,

Then rating agencies are worth fuck all, if you'll excuse my French.

You need to see the underlying data to determine whether it is plausible. If the rating agencies are permitted to take the truth of the underlying data as read, then the investor still has to perform an independent analysis of the data. And once you're looking at the data yourself anyway, you might as well run the full battery of tests.

- Jake

Friends come and go. Enemies accumulate.

To clarify, rating agencies are supposed to provide independent analysis of risk in order to solve the problem of people misrepresenting to others what their own data mean by creating a common means of comparison. They are supposed to prevent people from lying in the interpretation of data, not prevent people from actually lying about the data themselves.  Stopping people from cooking the books is what auditors and other regulators do. But cooking the books is not what is given as the cause of the Great Recession -- bad and biased interpretation of the real risks of failure are.  It's the risk ratings that failed, not the auditors.