The case against the Big Three rating agencies took another step forward when a New York judge threw out the freedom of speech defense for one of the complaints. Terry McGraw, CEO of McGraw Hill, and owner of defendant Standard & Poor’s, says that at the peak in 2006, the industry was prepared for a worst case scenario of a 15% draw down in real estate prices over 18 months on the local level. Instead, it got a 50% national plunge that is now two years old and aging. It didn’t help that a Moody’s analyst wrote an e-mail saying he would rate paper issues by “cows.” In the race for market share, Moody’s, S & P, and Fitches’ competitively devalued the meaning of “AAA” so that even the most toxic subprime sludge came out highly rated. With their seals of approvals, the agencies became the facilitators-in-chief of the over lending and over borrowing that made the crash a mathematical certainty. The hedge funds that made billions wisely ran their own in-house ratings departments which thought otherwise. They fell down on their knees, thanking God that inflated “independent” ratings led to wild over valuation of debt securities and set up some of the greatest shorts of the century. There is no Hell hot enough to make ratings agencies adequately pay for their deliberate misdirection of trusting investors. As for the hedge funds, their new short play is the one rating agency that is still publicly traded, Moody’s (NYSE:MCO).