Moody's Corp. (NYSE: MCO) Chief Executive Raymond McDaniel Jr. made a stunning admission at the World Economic Forum in Davos about the subprime mortgage crisis: "In hindsight, it is pretty clear that there was a failure in some key assumptions that were supporting our analytics and our models."

In other words, people lied to us because the 'information quality" the ratings agency got was lacking in "completeness and veracity," as Floyd Norris notes in the New York Times.

Come to think of it, this has a familiar ring to it. Back in 2002, Moody's and S&P whined to Congress about how they missed the implosion of Enron. Those meanies at Adelphia also bamboozled Moody's.

Question: Aren't Moody's and S&P paid a lot of money to check the "completeness and veracity" of the information people tell it so it can rate stuff?

Many on Wall Street think the credit rating agencies -- Standard & Poor's and Moody's (NYSE: MCO) -- have some serious s'plainin' to do, and the Congress agrees. The public outcry comes in the wake of the subprime meltdown, where high-risk loans ended in default far more frequently than the agencies had predicted they would.

The SEC is also investigating whether the agencies where inappropriately influenced by underwriters, and whether they bent their own criteria to give loans better ratings.

According to (subscription required) The Wall Street Journal, "New York Senator Charles Schumer, a senior Democrat on the Banking Committee, is expected to raise the idea that credit-rating agencies should switch back to having investors -- instead of issuers of the bonds -- pay for the ratings."

Exactly. When you have the person issuing a bond paying you to tell you how big of a risk they are, how objective could you possibly be? They're paying you! And in the end, investors end up paying the costs of the ratings anyway: They're lending the company the money.

If the subprime fallout continues, Schumer's suggestion could gain traction.

Ratings agencies have tremendous power in the financial markets because their ratings determine if a certain credit is "own-able" by funds, depending on their covenants. For example, low-risk pension funds can't own poorly graded credit simply because it increases the likelihood of losing money. When ratings agencies change their position on companies or sectors, the market listens. A perfect example of this was the recent subprime fall that resulted from S&P announcing it could downgrade some of the credit from the group.

Now the opposite has occurred -- Fitch announced that it has positive outlook for Doral Financial Corp. (NYSE: DRL). Fitch justified its optimistic outlook for Doral by mentioning the company's sale of a 90% stake in the company to Bear Stearns (NYSE: BSC) Merchant Banking, among other things.

Even though this upgrade was on the company's debt, the stock traded up as well. I think Doral is too speculative to play with, and the future of this company, especially the stock, is extremely up in the air at this point.