How low can Moody’s go?

Longtime nemesis David Einhorn told investors at a conference in Manhattan Wednesday that he is still betting on a decline in the shares of Moody’s . And the company’s chief executive, Raymond McDaniel, was summoned for a hearing next week before the Financial Crisis Inquiry Commission in New York.

He is to appear before the congressionally-appointed investigative panel on June 2, along with five current and former Moody’s execs and the firm’s top shareholder, Berkshire Hathaway CEO Warren Buffett. The subject: The credibility of credit ratings and their role in the investor decisions that led to the meltdown.

The commission is sure to batter McDaniel and his colleagues about how the rating agency’s failures contributed to the housing bubble, and why the Securities and Exchange Commission may soon sanction the company for violating its own protocols. With any luck, it may even push Buffett, who has held the stock for a decade, to explain why he stood mutely aside as the company frittered away any claim to prudence and integrity by rubber-stamping Wall Street junk with gold-plated triple-A ratings.

But as bad as the company is apt to look before the commission, the more immediate threat comes from Einhorn. He  has been sharply critical of Moody’s and rival Standard & Poor’s, a unit of McGraw-Hill , since the credit meltdown started in 2007.

An Einhorn crusade against a high-profile financial company is worth watching because at the same conference two years ago, Einhorn took aim at Lehman Brothers, questioning whether it was misleading investors and cooking its books. We all recall how that turned out.

Yet despite all the deserved brickbats aimed at the rating agencies, the outcome of this battle isn’t yet clear: in spite of their own fecklessness, Moody’s and S&P seem to have weathered many of the storms Einhorn has been predicting since he started shorting their shares last year.

He has been saying the companies’ profits could be hit in a regulatory overhaul, but they appear to have made it through the first two rounds in Congress largely unscathed. Einhorn has also predicted that the companies could face huge legal liability tied to the generous ratings they assigned to so-called structured debt like subprime-related bonds — though the outcome there is equally uncertain.

There is a lot of exasperation about the fact that, like Fannie Mae and Freddie Mac , the rating agencies were major contributors to the housing bust yet have escaped comeuppance. But the thirst for vengeance doesn’t make the stocks a surefire bust.

Some observers say Moody’s looks cheap, assuming none of the doomsday scenarios come to pass. Even Buffett — who has been steadily selling his stake over the past year — says that for now the rating agencies have a “wonderful” business.

That probably won’t help the ratings stocks Thursday — Moody’s dropped 5% late Wednesday after Einhorn’s remarks were reported — but the expectations may be so low that the selloff won’t be as brutal  as many people would like.