) --

Moody's Investors Service's

TST Recommends

(MCO) - Get Report

stock has gotten clobbered in recent days, while shares of



are holding up far better, a trend that may not continue for long.

The big selloff in Moody's shares came Wednesday following a report in

The Wall Street Journal

that a former analyst at the ratings giant is accusing it of knowingly giving inappropriately high ratings and has taken his concerns to Congress. The analyst, Eric Kolchinsky, is scheduled to testify before Congress on Thursday.

Moody's shares fell 8.4% on more than twice their average volume Wednesday, while McGraw Hill shares dropped 1.7% on average volume.

The claims are especially damning because a recent high-profile


against the ratings agencies hinges in part on the question of whether Moody's and McGraw-Hill's ratings unit Standard & Poor's knowingly inflated the ratings on certain securities. The plaintiffs, Washington state's King County and Abu Dhabi Commercial Bank, need to prove there was intentional inflation of ratings to stand a chance of winning. The case has attracted special attention because it marks the first time a judge rejected the agencies' longstanding use of the First Amendment to defend against fraud claims.

I have argued that

Moody's and S&P

will eventually recover from this selloff, which is driven partly by a drop in revenue at both companies but mostly by the overhang of legal questions and the possibility of losing the government-approved oligopoly they share with


. Betting on legislators making trouble for companies that have been central to the financial system for decades is like betting against

JPMorgan Chase

(JPM) - Get Report

on the theory that Jamie Dimon will eventually retire. Yes, eventually, someday, but who's to say the bank won't continue to dominate?

A short-term bet might make sense, though. Moody's shares have fallen nearly 21% in the last five sessions, while McGraw-Hill's stock is down a little more than 8% over the same stretch. These companies have traded in tandem with each other for at least five years. Shorting McGraw-Hill and buying Moody's is worth considering, though the trade carries risk. McGraw Hill, at least, has a publishing arm to save it from oblivion.

At some point, too, if the heightened scrutiny of the ratings industry does result in greater regulation, there will be an impact on banks like


(C) - Get Report


Goldman Sachs

(GS) - Get Report

, and

Morgan Stanley

(MS) - Get Report

; bond insurers like


(MBI) - Get Report




; and a whole host of other financial companies who rely on Fitch, Moody's, and S&P to provide accurate measurements of risk.

Readers, post a comment sharing your thoughts about what some of the potential fallout could be if Moody's and S&P ceased to matter in the credit markets.


Written by Dan Freed in New York