One of the criticisms of the economic crisis in 2008 was the claim that the credit rating agencies were asleep at the switch, and didn’t warn investors in CMOs (Collateralized Mortgage Obligations – think Freddie Mac and Fannie Mae) that the mortgage portfolios were getting more and more risky.
The issue on the table is how do you find a balance that protects rating agencies so they aren’t intimidated by the threat of lawsuits for publishing negative information, but not protect them so thoroughly that they are immune from the consequences when they fail to report bad news.
Last month, a group called Audit Integrity, which is an industry research firm that focuses on risky or fraudulent business practices, published a list of “the 20 companies most likely to end up in bankruptcy”. Hertz was one of the 20, and is now suing Audit Integrity and encouraging the other 19 companies to do the same.
(One of the 20 has already been removed, but that was due to a data problem from the company that supplies the data that goes into their risk model)