Credit Rating Agencies: Causing a crisis, crying “free speech!”

After Citizens United, Americans are pushing back against the corporate misuse of the people’s free speech rights.  But this battle is about more than campaign finance reform.

Add the credit rating agencies that rubber-stamped Wall Street’s toxic financial products to the list of corporations twisting the people’s First Amendment free speech rights to protect themselves from government regulation and lawsuits.   The  rating agencies assess risk in various financial products, including bonds, securities and derivatives.  The corporations that operate these credit rating agencies get paid billions of dollars for this work and include  Standard & Poor’s (McGraw-Hill Companies, $6.9 Billion annual revenue), Moody’s Corporation ($1.8 Billion annual revenue) and Fitch, Inc. (Fimalac, €560 million annual revenue).

These corporations are widely believed to have played a significant role in the 2008 economic collapse by giving unreasonably optimistic ratings to very questionable bonds, securities and more abstract creations of Wall Street, such as synthetic collateralized debt obligations. This led a number of institutional investors like local banks and municipal pension funds to unwittingly make precarious investments that ultimately went down the drain.   Observers have attributed these allegedly misleading ratings to an unhealthy conflict of interest in which financial product issuers pay rating agencies for their assessments.

You might be wondering what this all has to do with the First Amendment and free speech.  As rating agency corporations face demands for reform from Congress and a legion of angry investor lawsuits, they are hiding behind the argument that they have a corporate right to free speech, so they had no obligation to provide honest and accurate investment information.   In fact, they are claiming the same rights as journalists, which means lawsuits against them must demonstrate “actual malice”, a high legal standard to meet.  After earning billions of dollars for their rating fees, these companies are now claiming that thanks to the Supreme Court’s creation of corporate speech rights, they are not accountable for those ratings.

While the idea that corporations can use “free speech” to escape accountability for misleading investors and blow up economies may seem (and is) outrageous, the argument has had great success to date.  Of the 30 lawsuits initiated against Standard & Poor’s, five have been dropped, and Standard & Poor’s has succeeded in 12 of its 15 motions to dismiss.  One major case that has survived S & P’s motion to dismiss is Abu Dhabi Commercial Bank v. Morgan Stanley & Co. Inc.   In that case, the District Court recognized that while the courts in recent decades have indeed given rating agencies broad free speech rights in its publicly disseminated ratings, those speech rights are narrower in the context of private consultation.   In essence, when someone is paying you for private advice, you do not have a free speech right to mislead.  This case is in its early stages, and may turn on a variety of factors, including whether the ratings which privately or publicly disseminated.

While rating agencies have largely had their way in court, recent legislative efforts have been more successful. Senator Al Franken’s (D-MN) amendment to the financial reform bill would create a Credit Rating Agency Board that would pair bond issuers with rating agencies, ending the current conflict of interest.  Senator George LeMieux’s(R-FL) amendment would strip a federal requirement that had essentially funneled institutional investors to the three major rating agencies.

It remains to be seen whether either of these amendments will survive in the legislative process (including the armies of Wall Street lobbyists), but it is likely that some form of rating agency reform is imminent.  This could be a significant achievement, given the stranglehold rating agencies have had over Congress and the SEC in the past few decades.  The SEC has proposed rating agency reforms on numerous occasions from the 1990s on, only to wilt in the face of whining and pressure from the rating agencies.  Rating agencies similarly have always had a strong foothold in Congress, arranging lobbyist meetings with every member of the Senate Banking Committee during the financial reform deliberations.  In 2009, the three major rating agencies spent $4,150,000 on lobbying, and they are on a similar pace for 2010. (source: opensecrets.org)

No matter how the battle in both the courts and the legislature comes out, the corporate “free speech” trump card that is increasing used when corporations run to court after losing legislative debates must end.  Free speech is for people, not corporations. If Americans must rely on private corporations to serve as rating agencies on which our economy depends, the fabrication of a theory of corporate, rather than human, speech rights must end.

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Cross-posted at Free Speech For People.

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A Coordinated Assault: How the Right Wing and Corporations are trying to pick apart clean election laws

We are all familiar with the devastating Supreme Court decision, Citizens United v. FEC that went down this January. However, corporate interests, in conjunction with the political right, have mounted a serious offensive to the entire clean election infrastructure. They are led by Republican operative/lawyer James Bopp, whose end goal is a United States “free” of campaign finance laws, where corporations can make unlimited contributions to elections anonymously.  The legal battlefield of campaign finance reform is fierce, and I’ve outlined some key cases below, which I’ll break down in greater detail once the Supreme Court releases its decisions.

For starters, check out the Campaign Legal Center, which has put together an absolutely incredible document outlining the corporate right’s grand plan for methodically eviscerating campaign finance laws.  It’s a long read, but here’s part of the intro:

Instead, their apparent goal is to go back nearly a century and dismantle many of the campaign finance reforms that have governed elections for decades, and to revert to the era of unregulated political spending that characterized the turn of the 20th Century.
It is clear that even disclosure laws – which conservatives have long championed as the only legitimate form of campaign finance reform – are under attack.
James Bopp, the attorney who initiated Citizens United and a longtime member of the RNC, for instance, has made no secret of the fact that his ultimate goal is the elimination of virtually all campaign finance restrictions including the reporting of donors.  In January, he told the New York Times that, “[g]roups have to be relieved of reporting their donors if lifting the prohibition on their political speech is going to have any meaning.”
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The litigation effort against decades’ worth of campaign finance laws are concentrated in five principal subject matter areas:

I.          Attacking Limits on Use of Corporate and Union Treasury Funds
II.        Undermining Meaningful Political Disclosure
III.       Going After the “Soft Money” Ban and Coordinated Spending Limits
IV.       Challenging Public Financing Programs
V.        Attempting to Deregulate “527 Group” Spending

There are several cases we should be watching closely in the coming days and weeks.

Doe v. Reed:  This case, brought by James Bopp, representing Washington state anti-gay activists, asks the Court for a constitutional right of anonymity for individuals who sign ballot initiative petitions.
The plaintiffs feebly argued petition signatories might face dangerous retaliation for their anti-gay views.  During oral arguments, Justice Scalia mocked this concern, “The fact is that running a democracy takes a certain amount of civic courage. And the First Amendment does not protect you from criticism or even nasty phone calls when you exercise your political rights to legislate or to take part in the legislative process.”
The real purpose of this case was not to protect anti-gay Washingtonians, however, but to weaken disclosure requirements in election law. Bopp has a long term strategy to undermine disclosure requirements for corporations, so that they can funnel unlimited money into elections anonymously.
This decision could come down as soon as Tuesday.

McComish v. Bennett: This case was brought by independently wealthy and heavily funded Republicans for state office challenging the Arizona Citizens Clean Elections Act, which provides public matching funds to candidates running with only public financing. The law was passed in 1998 after a series of embarrassing scandals in which Arizona legislators were caught taking campaign bribes in exchange for votes.
The plaintiffs claim that public funding chills their free speech rights, because whenever they raise money, their opponents would receive matching funds to use speech against them.  They also claim that the reasoning behind the Arizona Citizens Clean Elections Act was undercut by the Supreme Court’s holding in Citizens United that campaign spending was not inherently tied to corruption. The Ninth Circuit soundly rejected both arguments, finding that the Arizona law responded to an important state interest in promoting clean elections, and that the candidates’ speech rights had not been chilled.
Now the plaintiffs have asked Justice Kennedy to stop Arizona from distributing public matching funds until the Supreme Court hears the case.  Justice Kennedy will probably bring the case to the conference and issue some sort of decision in the coming days. Imagine, the Arizona government actually on the right side of justice in this case…

Credit rating agency cases:  As lawsuits and legislatures go after the credit rating agencies that misled investors, rating agencies are hiding behind the First Amendment. It’s an argument we’ve seen time and time again from corporations, who claim free speech to shake off regulation and dupe consumers.  I’ll be giving this issue its own full post soon, but here’s the legal issue in a sentence: Rating agencies are claiming the same First Amendment rights as news organizations, arguing that an “actual malice” needs to be applied to their thoroughly misleading bond ratings, which cost investors millions.  This difficult to meet legal standard is not invoked for information that is privately disseminated, so expect that to be the key issue in a number of suits going forward.

Corporations will not rest until they can run rampant over the American people, and they have an army of corporate lawyers helping them.  Unless you are an attorney with lots of pro-bono time on your hands, there is not much you can do to help win the cases, but we need all hands on deck to get this critical issue out there. The silver lining of Citizens United was alarm bells it set off as corporate thugs and their robed cronies were stealthily trying to rewrite the Constitution.

So, spread the word, tell the people, and fight back. Fight back in your local paper, in your state legislatures, and in the upcoming elections.  And pace yourself, because the battle for clean elections is one for the long haul. Without clean elections, all other issues will die a quiet death.

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In the interest of full disclosure, something that I support as policy, I am assisting two coalition groups, Free Speech for People and Move to Amend.  Both groups are focused on passing a Constitutional Amendment to address the role of corporations in elections (and possibly the larger issue of corporate personhood- but that’s a topic for another time).  They are both involved in waking people up to this corporate assault on democracy.

Today’s Stories of Interest

Michael Wilson discusses a potentially terrible byproduct of the Citizens United decision- will it allow employers to put more political pressure on their employees? http://www.huffingtonpost.com/michael-j-wilson/businesses-can-now-legall_b_480028.html

Reposting a Joseph Stiglitz interview on why proposed banking reform is completely inadequate. This is a long, substantive interview with the Nobel prize-winning economist who has been a booming voice for reform, and this interview should be reread till it’s seared into your brain: http://www.alternet.org/story/145773/joseph_stiglitz%3A_bankers_made_reckless_bets_on_the_economy%2C_kn…owing_taxpayers_were_going_to_pick_up_the_tab/?page=entire

Sebastian Jones wonders why it’s so hard for media outlets to make “commentators” and “analysts” to disclose their corporate ties when they arebeing interviewed: http://www.thenation.com/doc/20100301/jones.  Jones’ interview with Democracy Now’s Amy Goodman is here: http://www.thenation.com/doc/20100308/jones_video