The panel, and most lawmakers on the committee, seem to agree that the failures of the big three credit-rating agencies — Moody’s, Standard & Poor and Fitch– is about more than just “gross incompetency,” as Rep. Mark Souder (R-Ind.) put it.

Frank Raiter, managing director and head, from 1995-2005, of the Standard and Poor unit that rated residential mortgage-backed securities, said that the credit agency didn’t understand credit default swaps when he was there. “Intuitively, if you can’t explain what these things are to us [people whose job is to evaluate mortgage securities], it was real curious why the product was enjoying financial success.”

Yet S&P, which controls 40 percent of the credit-rating market, routinely gave the swaps AAA ratings. Internal S&P and Moody documents reveal that the companies knew their rating systems were broken but their continued business depended on rating these swaps. One Moody’s memo says that, ideally, investors would come to Moody’s based on “ratings quality” and “service.” But they were actually looking for a AAA rating. And if Moody’s couldn’t deliver, the investor would go to S&P or Fitch.

Sean Egan, managing director of Egan Jones Rating Co., said CRA executives felt compelled to capitalize on the brave new world of swaps. “It’s not incompetence,” he told the committee. “If you are the manager of this public company, it’s your job to increase revenues and profitability.”

The CEO’s of Standard & Poor, Moody’s and Fitch will testify this afternoon.