In recent years, it has been hard to feel sympathy for the ratings agencies.
In the credit boom, the agencies stoked the bubble by pumping out wildly – or willfully – misguided analyses on issues from mortgage risk to Iceland.
And when the bubble burst, they were notably slow to admit fault.
I vividly remember, to cite just one example, how Moody’sdowngraded dozens of mortgage-linked collateralized debt obligations late on Christmas Eve 2007, presumably hoping to avoid too much attention.
But this Christmas, I almost feel a twinge of pity.
For as pressures mount in the euro zone, they are in an impossible bind.
This year many investors have complained that the agencies have been slow to recognize the scale of problems, downgrading periphery debt too late – and after debt prices have started to move.
However, when the agencies have actually acted – most notably with Spain this week – they have been accused by politicians of fermenting a new market crisis.
And while this is partly political posturing, it is hard to deny that those downgrades are rocking markets.
Just look at how the euromoved after Moody’s warned on Wednesday itcould downgrade Spanish sovereign debt.
In some respects, of course, this is nothing new: the agencies often become scapegoats in a crisis.
But this particular tussle is potentially important since it comes amid a wider regulatory debate about the agencies.
Last month the Financial Stability Board issued a thoughtful report, which noted that there are significant dangers in the current system.
In particular, the way that ratings are “hardwired” into numerous regulatory and investment judgments, means that changes in ratings tend to cause a “herding” or “cliff” effect, because small shifts in a rating can prompt an avalanche of sales, worsening a bad situation.
As a result, the FSB argues it is not enough to just overhaul the credibility of the ratings (say, by making them more transparent); it wants the hard-wiring to be reduced too.
And similar sentiments have been echoed by American politicians, with the Dodd-Frank reform bill calling for government agencies to reduce their reliance on ratings.
So far, so sensible, it might seem.
But the rub for the regulators and agencies is that nobody has any clear idea how to create a workable alternative to judge credit risk.
The FSB report suggests that regulators should encourage banks to use their own internal risk models, as well as ratings.
But these may not be failsafe either.
And using the margin limits set by clearing houses can also be controversial; just look, for example, at how shifts in margin limits have affected the outcome of the Irish crisis.
Meanwhile, most central banks and investment groups do not have the resources to conduct extensive independent credit analysis.
After all, the dirty secret why ratings proliferated in recent years is they offered a seemingly cheap and easy shortcut for everybody.
Alternatives would create short term costs.
And while that might be a price worth paying in the long term, there is still little sign that politicians, regulators and investors are willing to pay that now.
The net result is frustration all round.
These days the agencies are trying to become more transparent.
They are also offering more subtle and thoughtful outlooks, in an effort to educate investors into the complexities of forecasting (and thus, it is hoped, avoid crude “cliff” effects).
When Moody’s recently downgraded the debt of Ireland, it explicitly warned that “multi-notch” downgrades might follow, and explained why.
Previously, such speculation would have been banned.
Meanwhile, European politicians, are considering further controls, such as forcing agencies to tell governments of rating changes three days before publication.
This, it is hoped, might also reduce market shocks by allowing governments to “prepare” and “correct” mistakes.
But neither approach is a silver bullet.
If euro zone governments get prior warnings of rating changes it would probably also make the process even more politicised, particularly if information leaks.
And if agencies try to be “honest” in their assessments that may make markets even more nervous and fuel the political rows.
Just imagine the rows that might have occurred in Dublin if the Irish had been given three days to ponder Moody’s speculative debate about “multi-notch” downgrades.
So, the agencies are stuck in a bind, as are investors and regulators.
The ratings might be flawed, but nobody can afford to ignore them, or for the moment, afford to replace them.
So brace yourselves for more FSB debate.
And, I suspect, more euro zone dramas and downgrades in the coming weeks. Even, or especially, on Christmas Eve.