Monday, May 24, 2010

Free Speech vs Corporate Corruption & Greed

This Sunday's edition of The New York Times, in the Sunday Business section, has an article that is of particular interest to me. It is about the Credit Rating Agencies (CRAs). "Suddenly, the Rating Agencies Don't Look Untouchable" by David Segal is an article worth reading.

While some headway seems to be taking place with regards to suits brought against the big three of the credit rating agencies, it seems that a number of cases have been dismissed by judges on the argument of the First Amendment's protection of Free Speech. I disagree with this, and in fact, in my opinion, these judges are not just wrong, they are friggin wrong. Now I will explain.

There were ten ratings agencies recognized as of September 25, 2008 by the Nationally Recognized Statistical Rating Organization (NRSRO). A NRSRO member is a credit rating agency which issues credit ratings that the U.S. Securities & Exchange Commission (SEC) permits other financial firms to use for certain regulatory purposes. One of these purposes is that of an institution's Net Capital Requirements. The Net Capital Requirement is important for the SEC's monitoring of the safety of such things as money market funds and other types mutual funds.

This has nothing to do with free speech in my opinion by virtue of the fact that these credit ratings, used in the performance of a Federally created institution's work, and not just the exercise of free speech under the protection of the First Amendment. Judges that are throwing out law suits brought against the CRAs on grounds of free speech are, in my opinion, deaf to the whole purpose and responsibilities of the SEC and the NRSRO. But, who ever said judges know everything. In this case, again, in my opinion, they do not have the knowledge of the position of the NRSROs in the financial industry to make the correct decision.

Underwriters Laboratories is an independent products safety certification organization. When buying an electrical product, such as a hair dryer, people will look to see if the UL is on the product's box or container. Yet, UL does not approve products: however, acceptable products carry a UL certification. The CRAs do approve of a product in degrees. That is what the whole credit rating system is all about. Triple-A, Double-A, Single-A and so on are ratings of degree of safety and suitability for purposes spelled out by the SEC. The very fact that the SEC requires money market funds and other types of mutual funds, as well as financial institutions, such as banks, to heed credit ratings for Net Capital requirements, removes credit ratings from the arena of free speech. This has nothing to do with free speech, and these corrupt corporations should not be able to shield themselves behind the protection of the First Amendment. This is not what the First Amendment was written to protect. The First Amendment was written to protect Free Speech not corporate corruption and greed.

Stay tuned.

P.S. I am not an attorney, I have never been an attorney, These views come out of my head and are not the views of any network.


LceeL said...

Seems to me that a judge ought to recuse himself from making judgments on things he knows nothing about - or better, there ought to be specific judges declared as qualified to handle cases involving complex (or in this case, not so complex) financial matters. Perhaps a court of financial law? Why not? We have 'Family Courts' with specific jurisdiction. We have 'Criminal Courts' also with specific jurisdiction. Why not 'Financial Courts'?

moneythoughts said...

You know Lou, I think you might have something there. I don't see how credit ratings fall under the protection of free speech. If, as these ratings are, used in the performance of requirements set by the SEC (created by Congress), they do not, in my mind, qualify as free speech.

winslow said...

Of course this is not free speech. This is "legaleze" used by lawyers

Julie Schuler said...

That's funny. No one else has free speech at work.