James Moore: Reform is the real issue for credit ratings

Outlook There is a certain irony in the Calpers pension scheme taking the credit ratings agencies to court. The California Public Employees' Retirement System is one of many organisations that took a bath by buying into investment vehicles linked to toxic debt, which had been given glowing references by the credit agencies.

But Calpers is not the sort of organisation that has to rely on the seal of approval given by credit analysts, unlike, say, the dinky little local authority in the middle of Bavaria, or the small charity in Basingstoke looking to make a return on its reserves.

After all, Calpers is a big, smart, savvy organisation that has the talent and expertise to do its own research. It should have been aware that most sub-prime exposed "special investment vehicles" (SIVs) were horribly opaque, yet it still took the risk. Still, you can hardly blame Calpers for calling in the lawyers. When you've lost upwards of $1bn, what's a couple of million thrown at a lawsuit when it might help you recover some of it.

And even if Calpers should have been aware that SIVs and the various other poisonous little acronyms were saying very little about where the stellar returns they advertised were coming from, that does not absolve the ratings agencies of blame for their failure to raise the alarm; it is they who are supposed to be the credit experts. But their highly-paid analysts chose to follow the herd, and their fabulously expensive research ultimately proved to be about as useful as chip paper as a result.

This is an industry that has a vital role to play in the credit markets, and confidence in those markets may not be fully restored until a way to reform it has been found. While the legal ding dongs might be fun, that is the real issue.