Late last year, officials from Moody’s Investors Service gave a PowerPoint presentation to a group of mortgage lenders in Moscow. There were the usual arcana about what the ratings mean and how the agency creates them. Along with competitors Standard & Poor’s and Fitch Ratings, Moody’s serves as an unofficial umpire in major league finance, helping investors and underwriters gauge what to buy and what to avoid. Many big investors aren’t allowed to even touch bonds that don’t have the blessing of a good credit rating.

But midway through the presentation, Moody’s revealed a significant, and ultimately more dangerous, role that the agencies play in financial markets. The slides detailed an “iterative process, giving feedback” to underwriters before bonds are even issued. They laid out how Moody’s and its peers help their clients put together complicated mortgage securities before they receive an official ratings stamp. But this give-and-take can go too far: Imagine if you wanted a B-plus on your term paper and your high-school teacher sat down with you and helped you write an essay to make that grade.

The Russian lenders had just been let in on one of the dirtiest open secrets in the mortgage-ratings world, one that may have played a part in creating the housing bubble that’s now popping: The ratings agencies have had a bigger role in the subprime-mortgage meltdown than most people know. So far, irate investors have focused on—and upcoming congressional hearings and investigations will probe—the agencies’ overly optimistic ratings for packages of subprime mortgages, many of which are now ­blowing up. It’s becoming clear that the ratings agencies were far from passive raters, particularly when it came to housing bonds. With these, the agencies were integral to the process, and that could give regulators and critics the ammunition they’ve been looking for to finally force the Big Three to change. The credit-ratings agencies “made the market. Nobody would have been able to sell these bonds without the ratings,” says Ohio attorney general Marc Dann, who is investigating the agencies for possibly aiding and abetting mortgage fraud. “That relationship was never disclosed to anybody.”

The ratings that were ultimately assigned proved too generous, considering the state of the market. To make matters worse, the agencies were much too slow in downgrading the housing bonds, overlooking signs of excess that almost everyone else recognized. In July, in a last-ditch effort to make amends, Moody’s and S&P downgraded hundreds of mortgage bonds—the equivalent of slapping food-safety warnings on meat that’s already rotting in the aisles.