Rating for Godot

Rating agencies: Credit rating firms have managed the neat trick of alienating both parties in the US Congress. And government investigations of Standard & Poor's may re-energize legislative efforts at further reform. On partisan lines, these range from tightening Uncle Sam's grip to removing his helpful imprimatur. Either result could change the rating game.

Ideas from the Democratic pro-regulation camp include increasing the rating firms' legal liability for their assessments and even creating a federal rater. Republicans, no fans of trial lawyers, don't much like the idea of making it easier to sue the firms. Instead, they would like to abandon the current pattern in which many ratings are paid for by borrowers rather than investors, creating a conflict. Their endgame is to eliminate any government role in endorsing or overseeing specific firms and leave the field fully open to competition.

Such changes could have a big impact on business models. Though there is little consensus about next steps, S&P's message that its downgrade of US debt was based, in part, on dysfunctional politics did galvanize Congress into a rare show of unity. The Senate Banking Committee decided to scrutinize the firm's decision. Democrats view S&P's downgrade as pro-Republican, since the GOP is pushing hardest for near-term austerity. Republicans, on the other hand, see the raters as co-conspirators with Democrats to raise taxes. Separately, the Securities and Exchange Commission is looking into issues surrounding S&P's move.

The two other big raters, Moody's Investors Service and Fitch Ratings, are in the spotlight, too, though they didn't downgrade America's debt. Even before the downgrade, S&P and the others were held in bipartisan low esteem for their role in enabling borrowing excesses that spawned the global financial crisis. Many in Congress think last year's Dodd-Frank financial reform law, while increasing the raters' accountability and transparency, didn't go far enough.

Even with lawmakers' renewed interest, however, nothing much is moving through Washington these days, and the approach of the 2012 election will mean further sand in the gears. But if more downgrades hit Congress where it hurts, the headline risk could yet turn into legislative action.