The ratings companies were working backwards when they gave BBB rated sub-prime loans aggregated together the AAA ratings. They started with the ratings that they knew the banks and investment houses needed so that they could make their deals work and created the supporting premises after. It was made clear to them from their clients the banks and investment houses that without the AAA ratings there were no deals to be done or more importantly -- NO MONEY TO BE MADE!

Two things that must be called into question. First, if United States treasuries are rated AAA then everything else should be rated something less. It is shear lunacy and nonsense to have highly-leveraged sub-prime mortgages rated as equally secure. But they would tell you this is not how they view it. It is not top down but bottom up. What is the minimum threshold for AAA --- what is the risk of default, they ask -- well now we know! It is a tad more than treasuries.

The second thing I would take issue with among the ratings companies is the categories themselves. It is worth noting that the Moody's scale goes from Aaa to C, the Standard & Poors goes from AAA to CCC and nothing goes from A to F. Why not? Because that would be very poor business etiquette. But I assure you C is F by their measure.

Since I graduated high school many years ago I have been hearing about grade inflation. So now we see grade inflation in its worst form. They simply have eliminated the worst grades. Could it be the people that did the analysis for Moody's and S&P were the same people who benefited from grade inflation in school? Could it be our best and brightest are not leading the charge? Oh dear, it goes even further than that, I'm afraid. I think many Ivy League endowments may have been enamored by the high returns on risky investments camouflaged in AAA ratings and looked the other way. Now they too are crying foul.

There is plenty of blame to go around and I think change is in the air. For now the biggest change is in stock prices, but the ratings agencies will not escape the wrath of the markets or litigation, and like the stock market their credibility may not have found a bottom yet. Their grade is FFF.

Those of you who are new to BloggingStocks can check out my other stories and read Chasing Value or Serious Money to find more potential opportunities and verify my track record as well -- INCLUDING ANY BAD CALLS.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm.