Standard & Poors, a division of McGraw-Hill (NYSE: MHP), has joined Moody's (NYSE: MCO) and Fitch in announcing reforms in the wake of the criticism for their role in the subprime fiasco.

S&P says it will hire an ombudsman to investigate conflicts of interest and bring in an outside firm to look at compliance and ethics-related issues. Lead analysts will be rotated from time to time and the company will consider a slew of new factors: liquidity, volatility, correlation and recovery, and "worst-case scenarios."

But New York Attorney General Andrew Cuomo isn't buying it: "The supposed reforms announced today by Standard & Poor's and by Moody's on Tuesday are too little, too late. Both S.&P. and Moody's are attempting to make piecemeal change that seem more like public relations window-dressing than systemic reform."

From an investor's standpoint, I'm inclined to agree with Mr. Cuomo. Moody's carries a market cap of nearly $10 billion, but its entire business depends on the willingness of investors to take its ratings and analysis seriously.

But over the past year or so, the "work" of the ratings agencies has been exposed as pretty much a joke. It will take a lot more than this to recover the company's reputation.

In yet another sign of the growing pressure on consumers, retail sales rose 0.3% in August, less than the 0.5% economists have expected. Excluding autos, sales fell 0.4%. This data will likely pressure stocks and underscore the call from Wall Street for the Federal Reserve to cut interest rates at the September 18 meeting of the Federal Open Market Committee. (Update: Consumer confidence remained low in September, further bolstering the case for a rate cut).

There are plenty of economic signs for investors to ponder. The Wall Street Journal is reporting that the amount of borrowing by banks under the Fed's primary credit program surged to $7 billion, the highest level since just after 9-11. Prices for imported goods unexpectedly fell in August because of declines in oil and natural gas prices, providing a temporary check on inflation, according to Bloomberg News.

There are several financial stocks that are taking a beating today after a rash of downgrades by Merrill Lynch (NYSE: MER) this morning.

It has definitely been a couple of tough months for the financials as investors worried about what impact the declining housing market would have on their bottom lines. In the past week or so things have seemed to at least level off,, but according to Merrill Lynch there may still be some troubles ahead for a handful of Mid-Cap banks out there.

The banks that Merrill discussed today are those that the company views as being vulnerable to margin deterioration in the face of lowered earnings expectations and the possibility of future rate cuts by the Federal Reserve. Banks that Merrill views as possessing "asset sensitive" balance sheets (meaning their assets reprice quicker than their liabilities) were on the top of the list of downgrades.

Here are a couple of the banks to Merrill lowered today:

• City National Corp (NYSE: CYN) - downgraded to a sell from a neutral; stock is down 1.5%
  
• Cullen/Frost Bankers Inc. (NYSE: CFR) - downgraded to a sell from a neutral; stock is down 3.3%
  
• First Midwest Bancorp (NASDAQ: FMBI) - downgraded to a sell from a neutral; stock is down 3.1%
  
• Texas Capital Bancshares (NASDAQ: TCBI) - downgraded to a sell from a neutral; stock is down 6.7%
  

Michael Fowlkes has worked as a stock trader for seven years and spent the last two years working as an analyst for the online investment advisory service Investor's Observer.

According to TheDeal.com, Private Equity Intelligence is arguing that "the conditions for the long-term growth of the buyout industry are still very much in place." PEI is justifying this point of view, it seems, with the amount of capital still being raised by large private equity firms, despite the recent string of unfavorable news for borrowers and potential borrowers.

PEI goes on to argue that private equity funds are going to continue taking in huge sums of money as institutions raise their "target allocations" towards private equity funds -- a seemingly rational assumption.

But there are several problems with this thesis. Most importantly, I'd bet that the target allocations for private equity funds are going to decrease if the funds' returns suffer due to a more difficult borrowing environment. I'd also argue that recent fundraising success by private equity funds doesn't represent the health of the credit market -- I'd bet that many investors are simply chasing incredible past performance at these funds without recognizing that it was much cheaper to finance these transactions just one quarter ago.

While there's plenty of talent in the private equity space, I tend to believe that the difficult credit situation is going to hurt private equity performance over the next few years.

Another day, another huge decline in the Dow Jones Industrial Average.

Stocks tumbled yet again today as widespread panic over subprime mortgages, worries over retail sales and general unease about the future caused investors to shift their money into safe havens such as mattresses, refrigerators and crawlspaces in their homes. Pleas for calm by pundits such as Citigroup Inc. (NYSE:C) strategist Tobias Levkovich, who today urged investors "not to succumb to an emotional desire to sell before things get worse" were ignored.

What's remarkable about this more than 100 point sell-off is that it came after the Fed pumped $24 billion in temporary funds into the economy. Central banks in Japan, Europe and Australia also responded to the crisis, according to Bloomberg News.

Still, the market isn't stable and bad signs abound.

Countrywide Financial Corp. (NYSE: CFC) scared the bejesus out of the market yesterday with its warning of "unprecedented disruptions." France's BNP Paribas froze three investment funds that until fairly recently were worth about $2.2 billion because of losses in the U.S. mortgage market and apartment builder Tarragon Corp (NASDAQ: TARR) raised doubts about its ability to continue in business, according to the Wall Street Journal.

About the only good news came from the Fed's declaration this morning that it would provide liquidity "as necessary" to bolster the market.

Smart investors know that it's always darkest before the dawn, but that doesn't make times any less dark.