Sunday, November 30, 2008

On the Liability of Rating Agencies

This is an interesting idea--go after the Big Three security rating organizations (Moody's, Standard and Poor's, and Fitch) not for the quality of their ratings, which are protected by First Amendment rights ("we can say any silly, stupid thing we want, no matter how dumb we know it to be"), but for the effect of the ratings on African American and Latino communities. One of the scandals of the foreclosure crisis is that the mortgage brokers and non-bank lenders (those not subject to the Community Reinvestment Act) mined African American and Latino communities for potential borrowers, encouraging people who could easily have received safer loans to take out exploding ARMs and the like.

This complaint attempts to sidestep the First Amendment protections afforded the ratings' agencies. Whether it works or not, it would be useful for the EEOC to investigate the ways in which minority homeowners and homebuyers were steered to these nasty loans.

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