Steven Pearlstein does well to keep the credit-ratings firms in the spotlight, a place it seems they’ve been all too able to avoid.

The credit raters, Standard & Poor’s, Moody’s, and Fitch, were critical enablers of the securitization charlatanism to blame for much of the housing bubble—and other smaller ones like commercial real estate—in the first place. They are paid by those doing the securitization.

Maybe I’ve just missed this, but why am I just learning that it wasn’t always thus?

Call me simple-minded, but it seems to me that people who use a good or service should also be the ones who pay for it…

It used to work that way in the credit-rating business as well, with investors paying directly for ratings and analysis through some sort of subscription arrangement, or indirectly through their brokers. But starting in the mid-1970s, following a number of high-profile bankruptcies, people decided it was important to make credit ratings publicly available to all investors. Companies that issued bonds began paying for the ratings themselves, and it didn’t take long before agencies figured out that it was better for business if their ratings were a bit higher and their analysts were a bit slower to issue downgrades.

Pearlstein raises this point in the process of knocking the Obama administration’s reform proposals for the industry, which—yet again—dance around the real issue without enacting wholesale change. Does anyone deny the system needs fundamental reform? If not, why aren’t there fundamental reform proposals on the table? Things like Glass-Steagall II, breakups of big banks, new size caps, usury bans, etc.

He calls the industry “venal,” an “oligopoly” that’s “hopelessly conflicted” and says the sort of penny-ante rules Obama would put in place are nice, but:

It’s all well and good to put in rules designed to prevent this kind of race to the bottom, but history suggests that they tend to break down at precisely those moments when they are most needed — when the bubble is at its height and there are ungodly amounts of money to be made.

Indeed. That’s precisely when regulators are likely to get steamrolled, too. Rules without regulators don’t do much good. Which is why when you have a problem with something you fundamentally reshape it.

So the best way to avoid these inevitable conflicts of interest, it seems to me, is to return to the investor-pay model.

In pointing out that investors have never successfully sued the Big Three credit raters, who’ve been able to hide behind the First Amendment of all things, Pearlstein calls for “new legislation that makes clear that the ratings agencies owe the fiduciary duty of care and loyalty to their investor clients.” I think a lot of what’s gone wrong in this crisis is because companies or individuals giving financial advice to people have not had been required to be fiduciaries, meaning they haven’t had a legal responsibility to act in their client’s best interest. Sounds like another fundamental reform. See: mortgage brokers.

Pearlstein ends on an explosive note.

For lapses just past, the SEC should join with state attorneys general in filing a civil suit against the Big Three to force disgorgement of all those profits they earned providing triple-A ratings to triple-C junk during the recent bubble.

Hard core!

Ryan Chittum , a former Wall Street Journal reporter, is deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu.