Ed Dwyer, treasurer at Bristol-Myers Squibb, thought that he had found a nifty way to make a nice gain on some $800 million in cash the company had on hand available to invest. He parked the funds in auction rate securities (ARS)–interests in collateralized debt obligations (CDOs) supported by pools of residential and commercial mortgages or credit cards, insurance securitizations and other structured credits, including corporate bonds which had collectively been rated AA by Standard & Poor's, Moody's and Fitch.

Unfortunately, in late 2007 the investments tanked and on Jan. 31 the pharmaceutical company had to report a fourth-quarter charge of $275 million. A few weeks later, Dwyer was ousted by Bristol-Myers Squibb, a victim of a collapse in the structured finance market that none of the credit rating agencies upon whom he had relied ever saw coming.

Maybe Dwyer should have put more weight behind another smaller credit agency, Philadelphia-based Egan-Jones Rating Co., which in September 2007 was warning about the dangers of structured finance deals. On Sept. 20, Egan-Jones compared the mortgage crisis to cockroaches, saying, "Where there is one cockroach there is likely to be another," and adding, "The end of the crisis has been announced every week, and yet the problems remain." Egan-Jones had Bear Stearns at BBB+ back in November, while S&P still had the company at AA. Records show that Egan Jones, with only a dozen or so analysts, was downgrading many investment banks linked to the mortgage crisis, where the Big Three rating agencies, with their hundreds of analysts, didn't change their ratings until after the collapse. Egan-Jones began lowering its rating for bond insurer Ambac Financial Group in July 2007 over concerns about CDOs linked to troubled mortgages, while S&P left the firm at AA right into 2008.