CREDIT: Moody's Under Fire

For most of its 67 years, Moody's Investment Service, one of the nation's two major bond-rating firms, enjoyed an impeccable reputation for dispassionate financial judgment. Then, last spring, Moody's downgraded its rating of bonds issued by New York State's Municipal Assistance Corp., which was created to oversee New York City's troubled finances. The drop in the rating of the original MAC bonds from A (meaning secure) to B (meaning risky) put an immediate damper on the sale of later MAC bonds, endangering the attempts to bail out New York City.

Angered state officials immediately challenged Moody's evaluation, pointing out that Standard...