naked capitalism

fmo says:

Anyone old enough to be appropriately responsible for other people’s money “knows” what happened here, and the pressure that was applied given ARS problems.

One day I’m going to get a ratings company in discovery and I promise you goodbye first amendment privilege.

eh says:

So, as others have asked: Why does a AAA rated insurer need capital? Much less a “bailout”?

eh says:

…goodbye first amendment privilege.

Assume you mean fifth amendment.

Yves Smith says:

eh,

No, he does mean First Amendment. No one has ever successfully sued a rating agency for bad ratings. They claim a First Amendment exemption, that they are journalists publishing opinion. That fiction has been repeatedly affirmed in court decisions.

We cited in an earlier post an article that argued that ratings agencies were sufficiently involved in structuring CDOs that they could be deemed to be underwriters and thus liable. No one has puled off that line of attack, however.

Google “rating agencies” and “first amendment” for more detail. This, for instance comes from an SEC release. Note that the rating agencies (NRSROs) are objecting to regulation because it might weaken their First Amendment protection. They want to have their cake and eat it too:

Some commenters9 believe that the NRSRO designation acts as a barrier to entry into the credit rating business. Others have raised concerns about the extent of the Commission’s legal authority to regulate or impose requirements on NRSROs. Commenters argue that the Commission does not have explicit regulatory authority over NRSROs, and that it would be inappropriate for the Commission to impose a more comprehensive regulatory framework on rating agencies absent legislation. Others have argued that NRSRO rating activities are journalistic and are consequently afforded a high level of protection under the First Amendment. According to these commenters, suggestions that the Commission inspect or otherwise impose regulatory burdens on NRSROs would implicate the NRSROs’ First Amendment rights. They further believe that new legislation providing the Commission with additional authority over NRSROs would face the same First Amendment challenges.

eh says:

Thanks for the clarification. More, err, interesting info about Wall St.

foesskewered says:

If it were only an opinion, then investors are entitled to dismissing them. Unfortunately, most investors are too vested to rebel. Sigh, freedom of speech or freedom of $, what a dilemma