Posted on 04/21/2009 11:05:13 AM PDT by zaphod3000
aced with a rash of litigation over their ratings of mortgage-backed securities, credit-rating firms are hoping to rely on a longtime legal ace-in-the-hole: the Constitution.
But that protection is being questioned amid allegations that the firms had conflicts that encouraged them to give unduly rosy opinions about the creditworthiness of securities backed by subprime mortgages.
Moody's Corp., McGraw-Hill Cos.' Standard & Poor's and Fimalac SA's Fitch Ratings were hit with litigation over their ratings after homeowner defaults triggered investor losses in the securities.
SNIP
Yet to succeed in court, investors may need to navigate a thorny constitutional issue: Are the ratings that the services give securities -- ranging from triple-A to junk -- simply "opinion" that is protected by the First Amendment? Traditionally, the answer has been yes.
Rating firms generally enjoy a free-speech right to "make informed, thoughtful predictions about the future," says UCLA School of Law professor Eugene Volokh, a First Amendment expert. "That is no different from what newspapers or scholars do."
Courts in the past have held that rating firms are protected against claims that they issued ratings that either were too high or to low. To get around the Constitution, judges have ruled, a plaintiff would have to show that a rating firm not only made false statements, but also did so with "actual malice" -- a high legal hurdle. A Houston federal judge in 2005, for example, dismissed claims that rating firms misstated Enron Corp.'s financial condition partly because the plaintiff didn't allege the firms acted with malice.
(Excerpt) Read more at online.wsj.com ...
If they have or had insurance to protect them, I would say they are accountable. If they are not held accountable, no one should subscribe to their services and they should go belly up. Kinda like exit polls. Manipulation for cash.
The argument is interesting. “Hey, nobody has to listen to me.” However, the rebuttal would be that they portray themselves as experts ala doctors and lawyers, so they’re liable for their advice.
Early on I read about the potential role of the ratings firms in the financial crisis, but it's been fairly quite so far. Guess we might learn more about it now. Some columnists earlier suggested that the firms practically accepted bribes to give good ratings to risky bundled mortgages. Maybe we'll learn what role they actually played.
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