Bond raters hiding behind First Amendment
This is insanity: The bond raters, those three big Wall Street companies that rated crappy mortgages to be great investments, thereby plunging the country into economic chaos, are hiding behind the First Amendment. They are claiming that they can’t be sued for the financial equivalent of calling a mouse an elephant, because their work product is just an “opinion.” We charge millions of dollars for giving you a rating, and you can’t hold us accountable because it’s an “opinion.”
I’ll tell you this: I work as a lawyer. If a screw up someone’s case because I give him bad advice (in return for charging her a fee), she could (rightfully) sue me for malpractice. If I raised the defense that I can’t be sued for terrible advice because it was merely “an opinion,” I’d be laughed out of court with an adverse judgment tattooed onto my forehead. That the courts aren’t letting these ratings firms get hammered makes you wonder whether the unspoken defense is “too big to fail.” If they didn’t have this ridiculous “First Amendment” defense, the smug and irresponsible raters would be ripped apart by millions of justifiably irate plaintiffs.
And, of course, Congress is in no hurry to beat back the ratings firms’ lobbyists and hold these jokers accountable for all of the 401K’s they’ve trashed.
The fear is (probably) that if they are held accountable, they’ll vanish, making one less place through which other peoples’ money flows for no good reason.
Of course, letting them claim that their ratings are “only an opinion” isn’t likely to get them any new customers and may lead ultimately to their demise. Opinion? What am I paying you for? I can have an opinion all by myself and keep my money to boot!
Mark: I agree. If you’re charging money for something nobody can actually rely on, you’re stealing.
For years, the credit raters have stated that they are open to stronger supervision from Congress and the SEC. But behind the scenes they repeatedly have quashed or watered down potential government rules by arguing that, much like a newspaper editorial, ratings are protected by the constitutional right to free speech, according to a Huffington Post Investigative Fund review of congressional testimony, SEC documents and lobbying reports.
http://www.huffingtonpost.com/2009/11/11/how-credit-raters-fended_n_354190.html
Barney Frank is trying to hold the bond raters responsible, but once again nothing obviously necessary is easy in Congress.
http://www.huffingtonpost.com/2009/12/18/barney-frank-vs-the-credi_n_397404.html
[...] packages of these fraudulent and flimsy loans as highly rated? And how is it that the government grants these rating agencies immunity for their own fraud? And how is it that the government has not put any Wall Street bankers in prison for the financial [...]