1st Amendment Touted as Protection Against Reform

For perhaps the first time during this project, I stumbled across a topic relating to my theme without specifically looking for it.

While reading the Huffington Post one morning, the front page headline was an article detailing the background and situation of credit rating companies defending themselves against lawsuits and reform on the basis that their ratings of bonds are "opinions" and therefore protected by a right to free speech.

Now, it certainly took me a couple of readings through the article to feel like I really generally understood everything, given that I have no background in investments and the like. Per my understanding of the article, companies such as Moody's, Fitch, and Standard & Poor's put out ratings of different bonds, which others then use as a determining factor in whether to invest in the bonds or not. An inherent problem though is that apparently the practice used by these organizations is to charge those who are issuing the bonds, rather than those who are looking to invest. Naturally, these creates a conflict of interest; after-all, you can charge more to give someone a higher rating, regardless of whether it deserves it or not.

A significant problem has been ongoing in the last few years in particular when many people lost their money investing in bonds which had been top-rated. Some have responded by attempting to sue these rating companies, but in response they have claimed, as mentioned above, that their ratings are "opinions" and thus they are not liable.

Now, I would agree that under normal circumstances, someone recommending something which does not turn out well should not lead to them being liable. "Hey, you should buy this beachfront property" followed by "Oh no, a hurricane destroyed everything, I lost money based on your suggestion, I'm suing you." However, the conflict of interest charging practices just make this too fishy. Lawyers cannot just freely give advice and expect to be protected by 1st Amendment Free Speech rights when their advice blows up in the client's face. And as mentioned by a commenter on the article, an appraiser may offer their "opinion" on how much something should be valued, but that does not give them carte blanche to say whatever they feel like saying. I cannot see how these companies should not be held to the same kind of standard.

The article did mention that the claims of freedom of speech do not protect them from fraud or anything of that nature, but specifically proving fraud in these circumstances does not sound like something that the ordinary investor would be capable of doing. These companies have also resisted strong, meaningful changes to their business practices by waving the 1st Amendment in peoples faces, again according to this article.

Even if no real legislation is passed curtailing these companies, as an investor I would have to ask myself "given how these guys operate, why should I trust their word anyways?"