One of the rating agencies’ best friends, the First Amendment, is starting to distance itself. Had Moody’s and S&P broadcast their opinions on why subprime MBS deserved AAA ratings to the masses, they may have been able to dodge the current class action lawsuit facing them and Morgan Stanley regarding the implosion of Cheyne Finance Plc. But because they saved their free speech for a select group of investors, a judge ruled the triumvirate will have to spend some time drafting carefully worded responses to explain their take on the inherent credit quality of subprime assets.
Without ruling on the merits of the lawsuit, the judge said opinions by the ratings companies may be the basis for a lawsuit “if the speaker does not genuinely and reasonably believe it or if it is without basis in fact.”
But the MS and the agencies may still have another out here. Anybody who truly believed subprime MBS warranted AAA ratings clearly does not have the competency to stand trial.
Ratings Firms Lose Free-Speech Bid to Dismiss Lawsuit [Bloomberg]
I skipped over this story on Bloomberg. Why would I want to read about it here.
Snoozericious
I’m frightened and confused by your modern so-called Asset-Backed Special Investment Machines. My primitive mind may not comprehend what sort of commercial paper shortage might force the defeasance of its portfolio. But there is one thing I DO know: that Morgan Stanley, Moody’s, S&P, et al., were the victims here, and more importantly, that they are entitled, generally and severally, to compensation of not less than $6.6 billion in actual damages, plus general and punitive damages. I have nothing more to say.
Greg, I love you! Thanks for coming up with my new line of defense! Do you want some Mystic Tan coupons as a way of a thank you?
Ang Moz
Greg, I’m going to humiliate you in public through some combination of shouting and gesturing.
-Jeff Macke
Saying that the rating agencies can use the First Amendment as a defense when they helped structured the deals and gave the deals their seals of approval is like saying the First Amendment is a defense to fraud – hey it’s only speech.
@6, They were giving an opinion. Opinions are protected speech. It’s a defense that has met some success in the past.
Now that that it’s failed, maybe they should try temporary insanity.
This blog post is rated C.
-Moody’s
Any *financial professional* who truly believed subprime MBS warranted AAA ratings clearly does not have the competency to stand trial. But none of them ever did believe it. It’s the hordes of unsophisticated investors who bought mutual funds advertised as being loaded up with “AAA-rated corporate debt” who believed this really meant something about the safety of these investments, and they got royally screwed. And the rating agencies, i-banks, and fund managers knew damn well that these phony ratings would be used to rake in money from unsophisticated investors who couldn’t afford to lose their tiny nest eggs. Any financial professional who tells a court they believed these ratings were legit should be given a choice of serving their long sentence in either a prison or a secure psych hospital — they belong in prison, but if they want to play crazy to a court, the court should just go along with their game for the sake of efficiency and cost control.
@9- since when are MBS, CMBS, CMOs straight corporate debt?
If all you geniuses knew it was such bad stuff you must have really cleaned up over the last 2 years, right?
Right?
*crickets*
@9, 10: What is a bank, if not an ABS with better credit than most of its underlying assets?
Buffett dumps more Moody’s shares
http://ftalphaville.ft.com/blog/2009/09/04/70011/buffett-dumps-more-moodys-shares/?source=rss