A federal judge in New York ruled today that credit ratings aren’t necessarily First-Amendment-protected “speech.” According to the WSJ, the ruling, by U.S. District Judge Shira Sheindlin (apparently no relation to Judith “Judge Judy” Sheindlin), only applies to ratings that aren’t publicly distributed, and for the moment is binding only in cases filed in the Southern District of New York. But it’s nonetheless verrrrry interesting.
Moody’s, S&P and Fitch have long defended their ratings as akin to opinion journalism. “Part of the financial media,” Fitch described itself in a letter to the SEC a few years back. Moody’s has gone so far as to call the firm’s work “puffery.” As a sometime practitioner of puffery, I’d be sympathetic, except that:
a) The people and companies and government agencies I write about don’t pay me to write about them—which is how credit ratings generally work. Of course, some of the companies and government agencies I write about pay me indirectly to write about them, by buying ads in TIME or on TIME.com, but I don’t think that’s entirely equivalent to requiring companies and government entities to pay you in order for you to rate them. I have no idea beforehand who’s buying the ads, for one thing. The Moody’s/S&P/Fitch output is more like those “Special Advertising Supplements” you see in magazines or newspapers. Which are … protected by the First Amendment (New York Times Co. v. Sullivan was about an advertisement, after all). So let me abandon that line of reasoning and move on to the fact that:
b) There are no laws or regulations that rely on the opinions expressed here in the Curious Capitalist to set bank or brokerage-firm capital standards or determine what securities certain investors are allowed to buy or anything like that. If Curious Capitalist readers on Capitol Hill (hi y’all!) wish to promote such legislation, I won’t stop them. If they succeed, I imagine I’ll sever my ties to Time Inc., engage in a drawn-out and ultimately triumphant legal battle for the Curious Capitalist name, then start charging people, companies and government agencies to write about them. I’d be rich! But my status as a member in reasonably good standing of the financial media would, I think, be endangered. As is that of Moody’s, S&P and Fitch.