New Law Changes Liability Standard for Rating Agencies

October 25, 2010 by · 1 Comment
Filed under: Financial Reform, The Rating Agencies 

Congress passed a new bill that makes credit rating agencies liable for losses suffered by stockholders when they intentionally or negligently mislead investors. Credit agencies have protested the law, saying that they are being unfairly targeted. They warn that the bill invites frivolous lawsuits.

It is expected that agencies will produce fewer analyses of financial products now that they can be sued based on a “reasonable” investigation, which is a lower standard than what auditors or equity analysts face. In its original form, the bill would have also prevented the agencies from being paid by the credit lenders whose debt they rate. However, that provision was dropped before the bill passed. Thank goodness we didn’t enact another “full employment” provision for class action lawyers. Haven’t they done enough harm to the U.S. already? If there is fraud, prosecute it through existing channels.

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