In early September, a senior Moody's executive....at a small private dinner....said, "Moody's would never lower the credit ratings of a financial guarantor, because that would put the guarantors out of business."
Obviously one way to see this is that it's an issue of cozy crony corruption - and it's that too, of course - but also it's clear that there are structural problems in the financial industry. Lowering the credit rating of certain entities should be a perfectly mundane thing, a minor hit but nothing more. But for a variety of reasons it's actually more like dropping a nuke on the firm. Instead of being an additional signal to investors, a better reflection of the underlying reality, the act of lowering a credit rating can pretty much destroy these companies. Of course over time this is self-reinforcing, as everyone knows that there's a great resistance by the rating agencies to lower credit ratings for certain types of firms, which increases their reaction if it ever does happen, which leads to further resistance to cutting the ratings, etc...