NEW YORK (AP) _ Better a half-blind guard at the gate, than no guard at all.

Credit-rating analysts have been sharply criticized for failing to properly assess the risk of mortgage-backed and other complex debt securities. That doesn't mean we don't need them doing the job.

While Wall Street cheered Moody's Corp.'s better-than-expected earnings this week, that overshadowed news of what helped the company turn in those results: A big reduction in its compensation expenses.

Moody's, which didn't return requests for comment, paid out less in bonuses and cut its employee headcount in the first quarter. Poor timing for a company that needs a strong staff to thoroughly analyze the issues it is required to rate.

It would be easy to argue this the other way: Analysts at rating agencies including Moody's, Standard & Poor's and Fitch Ratings missed the mark before so why should anyone want them to stick around now.

They've been attacked for their bad guidance on the investment risks of mortgage securities, where triple-A rated securities were considered to be safe but turned out to be far from it. That has led to more than $200 billion in asset-related write-downs taken by banks and financial firms over the last year.

U.S. senators during a hearing in Washington on Tuesday suggested that rating agencies' government licenses should be suspended if they consistently give ratings that turn out to be inaccurate.

Sen. Richard Shelby of Alabama, the senior Republican on the Senate Banking Committee, compared the rating agencies to doctors. "If they're incompetent, they jerk their licenses," Shelby said, adding that by being "consistently wrong" on mortgage investment risks, credit rating agencies have "contributed greatly to the financial debacle we have today."

All true. But it's even more important now for the rating agencies to be exhaustive in reviewing issues they have an obligation to cover. They've got to get it right to assuage fears about risk that have wreaked havoc in the marketplace.

Remember, credit ratings don't just affect big banks' mortgage investments. If the investment side of the mortgage business is dead, that leads to fewer loan originations, meaning prospective home-buyers can't get mortgages to buy houses, which then keeps home prices depressed.

That's why Moody's earnings reported on Wednesday should be careful parsed. Yes, the company's 23 percent first-quarter slide in earnings to 48 cents per share was well above the 35 cents a share that Wall Street analysts had expected. Investors welcomed that news, sending the stock up nearly 3 percent.

Helping Moody's achieve those results were some cost-cutting initiatives, which shaved $46 million from its operating expenses. About 75 percent of that decline came from reductions in compensation expense.

Wall Street analysts support such cutbacks because Moody's business has contracted significantly over the last year. Revenues in its credit-ratings arm, Moody's Investors Service, has dropped 37 percent drop, and there has been a significant downturn in new issuance of fixed income products. There was nearly a 41 percent drop in the fourth quarter from year-ago levels and a 60 percent first-quarter decline from a year ago, according to Lehman Brothers.

But that thinking glosses over another important point: Even though it has lost business doesn't mean that it is time to thin the ranks and give employees less reason to work hard or stay with the company.

Joshua Rosner of the independent research firm Graham Fisher says staffing decisions means that Moody's which like all the rating agencies has a tough time retaining top talent and often loses them to the higher-paying Wall Street firms risks losing its best analysts because they won't have incentives to stay.

Also, fewer bodies to do secondary market ratings could be problematic, noted Rosner. Those ratings come after the initial review and are expected to be done in a timely and regular manner.

"Although new engagements have declined, the number of complex and outstanding securities that require increased and enhanced secondary market surveillance and monitoring has increased as a result of economic uncertainty," Rosner said. "It would be fair to expect that the rating agencies' first obligation should be to make sure they had adequate staffing to perform their regulatory function rather than reducing their work force to come closer to meeting their earnings numbers."

Ratings agencies must rebuild their reputation. That won't happen if they have too few people doing jobs that are crucial to many of us.

Rachel Beck is the national business columnist for The Associated Press. Write to her at rbeck(at)

Copyright 2008 The Associated Press.