Foreign Policy Blogs

US Court: Rating Agencies May Continue to Mislead

 

The world’s three major credit rating agencies won a HUGE legal decision by the dismissal of lawsuits seeking to hold them responsible as ‘underwriters’ for aiding & abetting investment firms to structure and assign false ratings, then sell the same securities to unwitting investors that were not worth the ‘AAA’ ratings they were assigned.  Wednesday’s ruling by the Federal Court of Appeals, 2nd Circuit in New York was a victory for McGraw-Hill Co’s (MHP.N) Standard & Poor’s, Moody’s Corp’s (MCO.N) Moody’s Investors Service and Fimalac SA’s (LBCP.PA) Fitch Ratings. The decision was also previously upheld by three lower-Court decisions.

Rating agencies have been widely faulted – including by the US Congress – for contributing to the Global financial crises that began in 2007 by issuing high ratings on junk debt securities, such as credit default swaps (CDS) that proved risky, and which the noted investor, Warren Buffett, called ‘financial weapons of mass destruction.’ The ratings agencies have come up with an ingenious defense by arguing their ratings were ‘opinion’ protected by free speech protections of the First Amendment.

In Wednesday’s case, plaintiffs including public & private pension funds who invested the retirement assets of workers all over the United States, State treasurers and other investors had between 2005 and 2007 bought more than $155 billion of mortgage-backed and other securities, including many with the highest “triple-A” ratings, that lost value when they were later downgraded. This ruling is a set-back for ordinary working Americans, the Middle-class, and individual investors everywhere.  Read more here.

Source:  Reuters                               Cartoon:  Washington Post





 

Author

Elison Elliott
Elison Elliott

Elison Elliott , a native of Belize, is a professional investment advisor for the Global Wealth and Invesment Management division of a major worldwide financial services firm. His experience in the global financial markets span over 18 years in both the public and private sectors. Elison is a graduate, cum laude, of the City College of New York (CUNY), and completed his Masters-level course requirements in the International Finance & Banking (IFB) program at Columbia University (SIPA). Elison lives in the northern suburbs of New York City. He is an avid student of sovereign risk, global economics and market trends, and enjoys writing, aviation, outdoor adventure, International travel, cultural exploration and world affairs.

Areas of Focus:
Market Trends; International Finance; Global Trade; Economics

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