Floyd Abrams is a lion and the First Amendment is his precious cub. If you come near it, he will maul you. Which is usually a good thing, but now he's shilling for the great unsung villains of the economic collapse: credit rating agencies. He thinks they have rights!
As the housing bubble inflated to outrageously unsustainable levels, it was the credit agencies like Standard & Poor's and Fitch Ratings who said everything would be okay, right up until the economy was destroyed. Venal and corrupt, they got paid to look over all the exotic and insane financial shenanigans that undid us, and because they were being paid by the people engaging in those shenanigans, the raters said, "Looks cool to me: AAA!!+++[smiley face]." Of course those bizarrely structured financial instruments turned out to be hocus-pocus, and so now the people who invested in them based on the ratings are suing and Congress is trying to regulate them.
Enter Abrams, who made his bones representing the New York Times in the Pentagon Papers case and is considered one of the nation's premier defenders of the First Amendment. He is representing Standard & Poor's in a variety of lawsuits related to their ratings, and he tells NPR's On the Media that what S&P does is no different than journalism: They gather information and render a judgment on it. And the First Amendment protects their right to do that free of regulation and legal harrassment:
I believe all sorts of entities deserve first amendment rights. Even though they're unpopular, rating agencies express opinions, and as such they should be as entitled to First Amendment protections as other people. It's not a bad thing, it's not an ignoble thing, and yes—I think it ought to be protected.
Another attorney for S&P, testifying before Congress, once summed up the same view by describing the firm's letter-grade rating as "the world's shortest editorial." Which would be defensible if the editorial weren't purchased by the person that it's being written about. What's more, when rating the structured financial products that got us into trouble, S&P was actually paid to advise the bond-issuers on how to build them so as to get a good rating, which makes them closer to partners in a fraud than disinterested observers who made a wrong call. Securities attorney David Grais, arguing the anti-S&P view to On the Media, likened it to a restaurant critic helping to cook a meal, writing a review of it, and then claiming that he's just a journalist. Abrams thinks it's innocuous:
Rating agencies have analytic standards. They apply those standards. Yes, they discuss with the entities that they're rating why they're doing what they're doing, and if the entity asks them, Well how come you're giving us a BB instead of an AA, they tell them why. And if the entity wants to do things to get a better rating, they can do them. And it's not inappropriate in my view.
We're sympathetic to Abrams' First Amendment absolutism, but to argue that S&P should be protected from lawsuits over frauds in which it was a participant diminishes his stature even more than his ill-fated decision to represent Judith Miller. If you're looking for an example of the "analytic standards" that his client applied when rating financial products, here's an April 2007 IM exchange between two S&P raters uncovered by the House Committee on Oversight and Government Reform last year:
S&P Employee #1: btw-that deal is ridiculous
S&P Employee #2: I know right.. model def does not capture half of the risk
S&P Employee #1: we should not be rating it
S&P Employee #2: we rate every deal
S&P Employee #2: it could be structured by cows and we would rate it
S&P Employee #1: but there's a lot of risk associated with it – I personally don't feel comfy signing off as a committee member.
S&P rated the deal anyway.