The SEC’s inspector general, David Kotz, released a report last Friday finding that the SEC failed to properly do its job of overseeing credit rating firms. However, based on an August 29 Wall Street Journal article (“SEC Criticized on Raters”) by Sarah N. Lynch, Mr. Kotz’s report apparently focused on the applications of smaller firms, not the big three agencies – Moody’s, Fitch, and Standard & Poors – whose ratings are primarily relied upon by the investing public. The big three were criticized for assigning toxic mortgage securities their highest ratings after the housing price bubble began to burst in the summer of 2006 and being paid by the issuers for their ratings. (For background, see our November 3, 2008 blog called “Are Credit Rating Agencies Just a Bunch of Bull?”).