Its only a matter of time but this is a stake in the back of these vampires!

Effectively a Court Judgment has pealed away the "just Good Citizens" defence which the 1^st amendment provides to all Americans, including "corporate citizens" from the Ratings Agencies. The Judge opined that "when a rating is distributed amongst a closed group then it is no longer an act of simple speech, it is an investment recommendation" (to paraphrase). Consequently the Ratings Agencies are now open to legal action for Fraud, since an "investment recommendation" is not protected by the 1^st amendment.  It was shameful even trying that defence, in my view! But I agree with the judge! The judge was only ruling in the case of one specific SPV (of which we know there is tsunami size backlog of un-heard cases); this is just the first in a series of many in American & European Courts I expect. The Official Details are below. I am indebted to excellent coverage of this issue on the channel CNBC the other lunchtime. 

BARONS

REUTERS

Scheindlin said the First Amendment's free-speech protection shouldn't serve as a blanket defense for Standard & Poor's and Moody's Investors Service in a lawsuit brought by a group of investors suing over now worthless debt notes.

The judge said that ratings on notes that are sold to a small group of investors should not be entitled to the same kind of free speech protection as notes that are widely sold to the public at large. Historically, rating agencies have said their reports are opinion and protected by the First Amendment.

BLOOMBERG

CNBC

The business model is clearly in free-fall to crash at the bottom of a ravine! (Where they deserve to be!) There seems in my view no breaks in the downward crash now for the Ratings Agencies. The board at McGraw Hill must be terrified, however calm they appear in front of TV cameras. Good Riddance to them I say, the behaviour of the Ratings Agencies in the "Teeth of the Gale" of the Crash one year ago, was cowardly and self oriented in my view, downgrading all the bonds they had initially rated highly and thus obviously exacerbating market conditions, it was clear to anyone who had line of sight. They deserve what they get! 

The more interesting question now that business model is broken, is what is going to take its place? I never got the model whereby we had to recognise what were commercial entities as somehow "infallible" in making investment recommendations. Now neither do the American Courts. So rating a piece of debt in future is likely to be treated similarily to Stock Broking Research and Corporate Advice generally. Obviously Rating a piece of debt in any manner cannot be done without some form of (Financial) Predictive Analytic (FPA) so it is likely that debt rating services might be optimally sourced from small independent Quantitative Financial boutiques, simply providing the execution of factor models for debt rating services, which in the past the Ratings Agencies built their now battered reputation from. It's a Strategic Thought!