No one's shedding any tears for the position the credit rating agencies, like Moody's, now find themselves in. After rating a lot of now highly-suspect mortgage securities as "AAA," Moody's along with S&P and Fitch are taking the lumps from market critics. Moody's CEO Ray McDaniel issued something of a mea culpa during the interview I did with him today. McDaniel noted that Moody's did some things wrong, but also said that it's not realistic to expect any rating system to be able to foresee the kind of contagion that's spread through the credit markets.

The method of rating complex derivative mortgage-backed securities, such as collateralized debt obligations, with a simplistic "AAA" rating has also come under fire.

While changes in corporate credit-worthiness tend to occur slowly, changes in structured-investments like collateralized debt obligations can happen much faster because of the degree of leverage and complexity built into these investment products. So last month, Moody's proposed a new rating system, aimed at creating more transparency for these highly complex products. The old system of using A-B-C and "+" and "-" to designate various levels of credit ratings could change into a numerical system that would scale from 1 to 21. The new system would also include potential warning labels about how quickly the ratings of the CDOs and other derivative products could change, if other external factors like interest rates or liquidity also change.

I told McDaniel that the new efforts at ratings transparency sounded difficult to achieve and likened it to trying to "hit a moving target." He agreed with the analogy, but said it was necessary because the company needed to develop a rating system for structured investments that changes as quickly as financial markets do.