SURPRISE OBAMA SHUTDOWN: Critical Enablers Of Financial Crisis - NOW - "LIABLE FOR WHAT THEY SAY"

[kpete]

Surprise! Ratings Firms Nailed By Financial Reform

By Ryan Chittum



The Wall Street Journal reports this morning that part of the bond market has shut down because credit raters like Moody’s have told issuers they can’t quote their ratings.
http://online.wsj.com/article/SB10001424052748704723604575379650414337676.html?mod=ITP_moneyandinvesting_0#articleTabs%3Darticle

Why? Because the financial-reform bill (law in a couple of hours) makes Moody’s, S&P, and Fitch—who were critical enablers of the financial crisis—for the first time liable for what they say. They’ve hidden behind the First Amendment for years.

Once the bill is signed into law, advice by the services will be considered “expert” if used in formal documents filed with the Securities and Exchange Commission. That definition would make them legally liable for their work, meaning that it will be easier to sue an firm if a bond doesn’t perform up to the stated rating.

That is a change from the current law, which considers ratings merely an opinion, protected like any other media such as a newspaper.

And:

The companies say that, until they get a better understanding of their legal exposure, they are refusing to let bond issuers use their ratings.

That is important because some bonds, notably those that are made up of consumer loans, are required by law to include ratings in their official documentation. That means new bond sales in the $1.4 trillion market for mortgages, autos, student loans and credit cards could effectively shut down.

There have been no new asset-backed bonds put on sale this week, in stark contrast to last week, when $3 billion of issues were sold. Market participants say the new law is partly behind the slowdown.

This, needless to say, deserves watching.

more:
http://www.cjr.org/the_audit/surprise_ratings_firms_nailed.php