Ratings

I just finished reading a new book about the economic collapse of the mortgage bank system entitled. “Reckless Endangerment”. The one thing that concerned me most was the author’s surprise that the rating companies like S&P and Moody’s were not aware of the danger that various companies were in until it was too late. They mentioned that Enron, WorldCom and Fanny Mae were all highly rated until a few days before they went under.
Why does this surprise me? Some 40 years ago a large insurance company Mutual of New York was rated triple A just a week before they went under. I investigated to find out why this happened and learned that the rating companies base their rating on data provided to them by the companies they are rating. I have previously written about my experience with Equitable in this regards. A French Company named AXA wanted to get into the US insurance market and they agreed to invest one billion dollars to purchase part of Equitable. Before doing this AXA spent 20 million dollars appraising Equitable holdings and only then did they make the investment. It was obvious to me at that time that no rating company could afford to check out anyone they were rating in that manner. It was then I learned that they just accept the data from the company they are rating. From that day on I realized that the ratings given by rating companies were worthless. This was proven by the three named companies above who gave false information to the rating companies.
My question is, why did I know this and not the experts in the field. Even today when I see a financial firm advertising that they have triple A ratings, I just chuckle to myself.