What we don't understand

They understand when a guy doesn't pay his taxes.

They understand if he doesn't show up for work.

They understand about sex and if a politician is caught playing around.

How they judge the politician who has stepped in one or all of those buckets is a more entertaining discussion for another day.

But if a politician does screw up, voters also expect him to fix it. It's the same with big business, and screw up is what the big bond-rating agencies did before the Great Recession.

The best known agencies, Moody's and Standard & Poor's, are supposed to be third-party analysts who give investors an objective valuation on a company's or public body's credit. Can the company or state or city make good on its bonds?

The agencies use a rating system dating back to the 1929 stock market crash. The public is most familiar with Triple-A, the best rating, Double-A and Single-A ratings. There's the infamous junk bond rating, which is about where California's bonds are these days.

These valuations have consequences.

The state of North Carolina, for example, has a Triple-A rating as do most of its local governments. When North Carolina floats a bond, it pays far less interest than California, a quiet savings that can amount to millions of dollars for taxpayers. Triple-A ratings are a cold, tacit compliment from Wall Street to government leaders for keeping their financial houses in order.

But what if the bond rating agencies are wrong? Dead wrong?

In a number of reports including one by the Securities and Exchange Commission and a recent story by Kevin Hall of McClatchy Newspapers, the public learned just how spectacularly bad Moody's and S&P did their jobs.

According to Mr. Hall's article, more than 60 percent of the bonds backed by mortgages have had their ratings downgraded. "How on earth," asked Lawrence McDonald, a former vice president at the bankrupt investment bank Lehman Brothers, "could a bond issue be AAA one day and junk the next unless something spectacularly stupid has taken place?"

This happened time and again, especially on subprime mortgage bonds. Wrong. Wrong. Wrong.

It gets worse.

Some of Moody's own executives warned their bosses that Moody's ratings were inaccurate and inflated. Their presidents, first Brian Clarkson, now gone, and then Michael Kanef, still there, responded by getting rid of the critics. That's outrageous.

There are explanations for the negligence, the major one involving changes in how the agencies got paid. After the 1929 Crash, regulations required the rating agencies to be paid by investors. That made sense. If a company was wrong on its ratings, investors would go elsewhere.

Regulations changed in the 1970s. Now, the businesses that issue the bonds can pay for the ratings. Let's say Lehman Brothers issues lousy bonds, but if they're paying for the rating, guess what happens? The bonds are rated not so lousy. And Moody's customers came back for more, upping the company's revenues from $800.7 million in 2001 to $2.037 billion in 2006.

Combine that ethically challenged system with the basement bottom reason of vulgar greed and the result is disaster. Millions of investors lost trillions of dollars on bonds that were worth popcorn.

Standard and Poor's response: "S&P is deeply disappointed in the performance of its ratings on certain securities tied to the U.S. residential real estate market."

No apology. No offer to correct the problem. Nothing but dripping disdain for the suckers who believed S&P's ratings.

What voters don't understand is why these companies have not been fixed and why people like Kanef haven't been fired.