The next time some bobblehead starts talking about how this crisis "is about people living beyond their means", remind them of this latest proof that the financial services industry was thoroughly and aggressively corrupt, and that was a much bigger problem:

WASHINGTON -- As the housing market collapsed in late 2007, Moody's Investors Service, whose investment ratings were widely trusted, responded by purging analysts and executives who warned of trouble and promoting those who helped Wall Street plunge the country into its worst financial crisis since the Great Depression.

A McClatchy investigation has found that Moody's punished executives who questioned why the company was risking its reputation by putting its profits ahead of providing trustworthy ratings for investment offerings.

Instead, Moody's promoted executives who headed its "structured finance" division, which assisted Wall Street in packaging loans into securities for sale to investors. It also stacked its compliance department with the people who awarded the highest ratings to pools of mortgages that soon were downgraded to junk. Such products have another name now: "toxic assets."

As Congress tackles the broadest proposed overhaul of financial regulation since the 1930s, however, lawmakers still aren't fully aware of what went wrong at the bond rating agencies, and so they may fail to address misaligned incentives such as granting stock options to mid-level employees, which can be an incentive to issue positive ratings rather than honest ones.

The Securities and Exchange Commission issued a blistering report on how profit motives had undermined the integrity of ratings at Moody's and its main competitors, Fitch Ratings and Standard & Poor's, in July 2008, but the full extent of Moody's internal strife never has been publicly revealed.

Moody's, which rates McClatchy's debt and assigns it quite low value, disputes every allegation against it. "Moody's has rigorous standards in place to protect the integrity of ratings from commercial considerations," said Michael Adler, Moody's vice president for corporate communications, in an e-mail response to McClatchy.

Insiders, however, say that wasn't true before the financial meltdown.

"The story at Moody's doesn't start in 2007; it starts in 2000," said Mark Froeba, a Harvard-educated lawyer and senior vice president who joined Moody's structured finance group in 1997.
"This was a systematic and aggressive strategy to replace a culture that was very conservative, an accuracy-and-quality oriented (culture), a getting-the-rating-right kind of culture, with a culture that was supposed to be 'business-friendly,' but was consistently less likely to assign a rating that was tougher than our competitors," Froeba said.

After Froeba and others raised concerns that the methodology Moody's was using to rate investment offerings allowed the firm's profit interests to trump honest ratings, he and nine other outspoken critics in his group were "downsized" in December 2007.

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Michael Moore had a few things to say about the Dow rallying past 10,000 today on the set of Morning Joe. First on how well the markets are doing.

Moore: Oh! It’s so incredible. Yes. Fifteen million people out of work.

Scarborough: Isn’t this a perfect example for you? Isn’t this a great example of what you’re trying to say? How there’s a disconnect between what’s going on on Wall Street, 10,000, and Main Street, 10% unemployment?

Moore: Oh, it’s not a disconnect. It’s connected very well. It’s connected just the way our economic system is set up. It’s set up so that the pyramid scheme that we call capitalism—it’s become a pyramid scheme now—the very few at the top get away like bandits making billions and billions of dollars. And everybody else in the lower parts of the pyramid are told to work really hard and maybe some day they can come up and be on top of the pyramid too. Well guess what? There’s only a few people that can sit on top of the pyramid and it’s just so revolting and so immoral when we live in a country—the wealthiest country on earth—fifteen million people unemployed. One in every eight homes right now is in foreclosure or delinquency. And they’re celebrating on Wall Street? And they’re paying each other bonuses?

Surprisingly Moore gets some agreement from Joe and Mike on the disparity of wealth in the United States. Maria Bartiromo however disagrees with Moore’s view of the news on Wall Street. Shocker right? The Wall Street flack tries to come to their defense.

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Forget all that talk about "green shoots," kids. We're been in the eye of the storm, but now we're about to run into another round of mortgage resets. It's going to get much, much worse:

World Bank President Robert Zoellick warned policy makers that fiscal-stimulus plans are insufficient to turn around the “real economy” and rising joblessness threatens to set off political unrest across the globe.

“While the stimulus has given an impulse, it’s like a sugar high unless you eventually get the credit system working,” Zoellick said in an interview with Bloomberg Television’s “Political Capital with Al Hunt” scheduled to air tonight and over the weekend. “When unemployment increases, that’s probably the most political, combustible issue.”

From Ryan Chittum at the Columbia Journalism Review:

The option-ARM resets mark the end of the salad days for their holders. The principal has to be paid off sometime, after all. So interest-only payments will reset to amortize in many cases will be an even bigger amount owed than when they first purchased the house. Low-interest teaser rates will reset to presumably higher rates.

Now, the question that raises for me is: How many of these option ARMs have been written down by the banks? If they haven’t been, then the capital holes are going to be blow out again.

On a broader level, it spells more trouble for the housing market, which is already down by a third nationwide (remember those jokers who said it could never decline even 1 percent?), and which, as the Times wrote the other day, is just now getting fully hit by the pain of prime-mortgage holders.

This will be, uh, bad for the economy. That’s not even mentioning the still-to-come crash of commercial real estate loans, credit cards, car loans, etc.

The press doesn’t need to be cynical about a potential recovery, but after all it’s been through in the past few years, it sure doesn’t need to give readers false hope.