Someone's got to take out the trash

Amazing article in today's Times about Moody's.  They used to refuse any compensation from the issuers they were rating, because this would create a conflict of interest and undermine their credibility.  Then they decided to be compensated by those businesses.  Then they went public and got caught up in short-term earnings mania.  Then they started rating trash instruments as AAA, and when good customers complained about a lower rating they would raise it.  Meanwhile, they were basing projections on scenarios in which, say, there was no estimated chance that housing prices would generally decline.

One can try to explain this in a rational behavior scenario.  Greedy cashing out on the Moody's side by officers with short time horizons, collective action problem on the shareholders' and investors' sides so no one steps forward to be the one to question them seriously.  But assuming individually rational behavior that plays out like this doesn't really help the neoclassical approach, because you get to wildly socially irrational outcomes anyway.