Librarian wins surprise judgement against Equifax in small claims court | Hacker News Reader

Librarian wins surprise judgement against Equifax in small claims court

vtdigger.org

392 pointsilamont131 comments

I was happy with how this went and the coverage has been nice.

Good for you!

I'm interested in your perspective on the small claims route vs. class action.

It seems like a class action suit has the potential to have a larger impact on Equifax since the size of it would be so large, but it's sad to see individual amounts so low in most of them.

It would be so much more gratifying to see 50000 people sue individually and have Equifax have to staff 50000 individual cases. They could choose to defend for more than $5K per case win or lose, or they could just pay out $5K to each litigant.

Equifax would beg for a class action where they get off for $500/litigant + a couple million to the winning attorneys.

> Equifax would beg for a class action where they get off for $500/litigant + a couple million to the winning attorneys.

But this plaintiff only got $600

And they had to send a lawyer from Atlanta to Vermont which probably at least tripled that. Not saying it's not small change, just saying there are other costs.

I sort of feel "let a million lawsuits bloom" I think there's a usefulness in the death by 1000 cuts approach and I think there will be class action cases whether or not 100 or 1000 people decide to sue in small claims. I also think the schema is a little different (tho I am not a lawyer) so you can make somewhat different arguments and claims.

How hard is this to replicate? Could anyone do it?

Access to the courts is something guaranteed by the Constitution (standard disclaimer about the shape THAT's in). Usually googling "File a small claims case" and your state name will get you started. Here are the steps.

http://www.civillawselfhelpcenter.org/self-help/small-claims...

Answered like a librarian - with a link to an actual useful, authoritative resource. Perhaps YC can hire one to chip in to each discussion (I started typing that sentence tongue-in-cheek, but now I'm thinking that it would be fantastic. Imagine someone who added useful, authoritative resources to each discussion - rather than my having to skim through the crowd-sourced noise looking for the signal).

I filed a small claim against a property management company that tried to screw me. It's actually really easy. It takes a while (I remember the wait time being about 6 months), and you have to pay $50-100 to file and have the court "serve" the defendant, but honestly that's a pretty small fee considering you have the entire weight of the US legal system backing you if you're successful.

Is the company liable for the fee if they lose?

Good question, I don't actually know. I think it's possible to make it part of the claim.

This is not exactly related to your lawsuit, but I gather from your Twitter feed that these days, librarians are spending a lot of time helping people use computers and especially the Internet. I don't go to the library hardly ever these days, but I have heard of this phenomenon elsewhere, too.

Yep, it's a really useful thing libraries and librarians-without-libraries spend a lot of time doing. We're often good at teaching things that are poorly documented or that people assume "anyone can use." I'm a huge fan of tech and the people who build it but they're not always the best educators, y'know?

Did you get any sense of whether or not Equifax intends to appeal the decision?

There was some discussion about 6 months ago -- https://www.reddit.com/r/legaladvice/comments/7h9tn2/i_sued_... -- suggesting that it looked like their strategy might be to lose in small claims court but to appeal any decision against them.

(And see also https://www.reddit.com/r/legaladvice/comments/7lz38l/tried_t... which seemed … more like it might be fan fiction rather than a real story.)

They sent me a W-9. I do not think they plan to appeal.

Would it have been possible to bring up the stress and anxiety this data breach has caused? Personally, this has been the case.

I definitely tried to (last year was such a shitty year!) but there wasn't a lot of traction for that. Maybe if I had brought in therapist bills and said "Reimburse me"

Yay! Congrats :-)

Is there a way we could see what your court filing looked like (with all the personal info redacted, of course)?

I'm considering making a filing myself, and would like to use yours as a model (if that's allowed).

Also, does anyone know if precedent matters in small claims court? Would a small claims court in California care that another small claims court in Vermont ruled a certain way in a similar case?

I think I put the bulk of it on my Medium post you can read here. It was surprisingly not a lot of stuff.

https://medium.com/@jessamyn/suing-equifax-in-small-claims-c...

I'm just a non-lawyer law geek (and former law student), but my understanding is: precedent does matter in small claims court to the same extent as in regular court, but rules of procedure and evidence are relaxed, the ability to appeal the judgment can be limited (not always zero), and the judges sometimes have less training than in regular courts. A lot of these specifics are determined by laws which vary by state, but I don't think any states formally take a different approach to precedent in small claims specifically.

As for California vs Vermont, those are in different states and under the jurisdiction of different federal courts of appeals. Therefore the only directly binding judicial precedents shared between them would be from the US Supreme Court (and some from England at the time of US independence).

However, if there's no controlling binding precedent, most courts would be willing to consider other states' sufficiently relevant judgments at a persuasive but non-binding level.

"if there's no controlling binding precedent, most courts would be willing to consider other states' sufficiently relevant judgments at a persuasive but non-binding level."

It sounds like it could be useful to have some sort of database or clearinghouse of data breach cases won against Equifax in small claims court, so they can be referred to in one's filings as relevant judgements.

The crux:

> Lewis issued a court order that found West was owed money to cover the cost of up to two years of payments to online identity protection services

So Equifax was liable for the insurance/protection that West bought out of fear for her financial safety. This is a fascinating solution to the problem that general plaintiff cannot sue until after they have provable harm. Instead of waiting for a rare $XXX loss and then suing for recovery, many plaintiffs can pay $X for insurance/protection and then sue for that cost.

The thing is, who do you think owns the identity protection companies, and what do you give you if they fail to protect your identity?

Why is that "the thing?"

https://news.ycombinator.com/item?id=17307809

She did not actually buy insurance, she just told the court what insurance would cost her.

From what I understand, this is a difficult claim to sustain because it can be argued as speculative. (See Jessamyn's own writeup.)

Would it be stronger to pay for credit freezes and then sue to get that money back? And would it still take a multi-thousand-dollar chunk out of Equifax to respond?

In this specific sense I’m not sure that the insurance itself is considered speculative, but merely a way to minimize/manage the possibility of potential damages in a reasonable way.

If I’m not mistaken, her write up addresses speculation as potential damages as estimated before they could be realized in an uninsured situation, or otherwise taken up by insurers themselves.

The insurance is another thing altogether—a tool to mitigate that real and known risk right now.

(I’m on mobile so I only glanced at her post.)

That said, IANAL or an actuary.

Two years is a short amount of time considering the data that was stolen will likely stay the same for a long time. What happens when someone has their identity stolen five years from now?

> “I would go to dinner and they would say ‘Equifax! Crazy! Nothing you can do,’” she recalled.

Exactly what we hear around here, too.

She only won compensation for identity insurance she had paid for. So, TBH, unless folks are willing to pay for identity insurance and give a lot of personal information to yet another damn company, there's still nothing the rest of us can do that don't want to do that other than wait around for our identity is stolen so we can sue for damages..

Edit: if you disagree, I'd love to hear how we can hit back. Because I've not found a way, nor seen anyone else do so in a way that doesn't require what West did in this article (paying for some service).

Edit2: I misunderstood, she did not have to pay for insurance to win.

The point is less what she won, than it is that she won.

You're missing the point. I care less about what she won, but how she won. She won in a way that I'm not willing to do (give info to yet another company, and pay them, then sue for compensation). I suspect I'm not alone.

Edit: she responded, I thought she had to pay for insurance to win damages, but I misunderstood! that's great news!

Isn't it a company that is already owned by equifax, already has your data, and given that equifax has already screwed the pooch, your data is already out in the wild.

I know this is nitpicking but I did not pay for any identity insurance. I said that if I had to, it would cost this amount and offered low end and high end costs for this. The judge decided to add these numbers together as if I had paid for it and awarded that to me (and I was clear about this in court, I did not fudge it to make it look like I had paid)

I see, thanks for the clarification. That means pretty much anyone would have a chance of doing similar!

Thank you. That is really important information; it means some justice can be had without paying back into the very industry that caused the mess in the first place.

The use of the word “librarian” here seems designed to evoke stereotypes of a short old computer illiterate lady who fought The Man and won. Jessamyn West is not that kind of librarian — see her Wikipedia bio for more detail.

It would be not more accurate but perhaps more clear to say “Well-known author and activist wins case against Equifax.”

Libraries were computerized long ago. Why would you have a stereotype of "a short old computer illiterate lady"?

Honestly I had that stereotype loaded in mind myself too. I think it's probably because I've not been in a library since the days of librarians being short old computer illiterate people

All my book needs were digitised long before our local library caught up, and then of course Amazon happened

How old are you?

30 on the dot this year

https://youtu.be/D9tP9fI2zbE?t=2m47s

For me, it's because my school librarian DID fit that description, and I never met my University librarians (everything was automated).

There was a city library near me. There may be one near you too.

even when she was mod at metafilter and writing books and things, she always presented herself 100% as a librarian, though. jessamyn.com starts off with "Hi, I'm Jessamyn./ I am a Vermont librarian." She owns librarian.net.

Yes, but calling her a librarian is like calling Dennis Ritchie a programmer. It’s 100% true but doesn’t really tell the full story.

Is there a name for this phenomenon, where a category is defined so much by "weakened" examples of it (e.g. your average 1/10th programmer, or your average mostly-just-a-library-clerk librarian) that, upon seeing a central example of the category with all the features the category is denotationally supposed to have, it actually seems non-central (i.e. "not really a librarian" or "not really a programmer")?

Yes, it's called misrepresentation.

It's a mixture of misrepresentation and denigration.

LessWrong calls it the "non-central fallacy". [1]

"Martin Luther King Jr was a criminal! Taxation is theft! Capital punishment is murder! Abortion is murder!", etc are examples of that sort of misrepresentation.

[1] https://www.lesswrong.com/posts/yCWPkLi8wJvewPbEp/the-noncen...

I think you’re confused. We’re talking more about the kind of thing where there’s a distinction between a “programmer” and a “programmer’s programmer”, where being too much of a programmer (i.e. a “programmer’s programmer”) makes you less like a “programmer.”

The noncentral fallacy is somewhat opposite to that—MLK is certainly not a “criminal’s criminal”—the reason people don’t identify him as a criminal certainly isn’t because he’s too much of a criminal.

It's much the same. Both are exceptional and atypical (non-central) in many attributes but fit the definition.

"MLK is just a criminal!" and "Jeffrey Dahmer is just a criminal!" are both non-central attempts to use extreme outliers.

No, it's not the same. The MLK equivalent of what's being discussed is introducing him as "Martin Luther King, a minister from Georgia...". It's using a very plain language to introduce someone quite exceptional.

The formal definition clears things up a little:

>"X is in a category whose archetypal member gives us a certain emotional reaction. Therefore, we should apply that emotional reaction to X, even though it is not a central category member."

The difference between calling MLK a minister and calling him a criminal is that being a minister isn't as negative. Nonetheless, calling him only a minister does evoke an emotional reaction that doesn't quite capture the power of MLK's role in society. Introducing him as a minister is an example of the non-central fallacy, but it's played for ironic effect.

I don't think the parent's point is that she's "not really a librarian" but that she's not just a librarian. In the sense that Usain Bolt isn't just a runner. An extremely prominent person in any field is (perhaps counter-intuitively) never going to represent the majority of that field.

In that sense I suppose this phenomenon is called "understatement."

My point was more that, in this case, she is “just a librarian”, because this type of thing is what being a librarian is supposed to mean—it’s just that most people suck at being librarians, kind of cargo-cutting the actions librarians have traditionally taken rather than looking around and trying to embrace the spirit of the goals librarians try to accomplish with the highest ROI possible for a modern context. When “librarian” was invented as a term, it referred to people like this.

The same is true of Dennis Ritchie: he’s just a programmer—because the word “programmer” was originally invented to describe people like Ritchie. But by that same historical standard, most modern “programmers” aren’t; they’re just code-monkeys.

The Usain Bolt example is different—Bolt really is an exceptional runner, rather than being a denotationally-central example of what it means to be a runner. When the word “runner” was invented, it referred to the lesser thing, with plenty of central examples; and by that yard-stick, Bolt is more like a “super-runner” or some such. (Similar to how the word “food” developed to refer to a category where the central examples were nutritionally merely-adequate, so now we’ve had to invent the word “superfood” for foods that are, like, really dang good at being food.)

The word programmer was not invented to describe people who invented an operating system and then invented the canonical programming language for operating systems.

> My point was more that, in this case, she is “just a librarian”, because this type of thing is what being a librarian is supposed to mean—it’s just that most people suck at being librarians,

In my experience (working in an academic library and interacting a lot with employees of other academic libraries), most actual present-day academic librarians do not suck at being a librarian. They're not as high-profile as Jessamyn West, but neither are they "computer literate old ladies" -- they use computers constantly in their daily work and are at least aware of issues with digital privacy, copyright law overreaches, etc. I suspect anyone who thinks "computer literate old lady" is still the normative example of a librarian, hasn't interacted with many librarians lately (or perhaps has limited experience e.g. in a small town library).

Try "dysphemism," while not exact, kind of gets at the preconception angle.

It is generally respectful to call people what they want to be called.

Good point. Perhaps the best would be "Prominent librarian wins surprise judgment..."

I guess it's a matter of what she is a librarian of. Maybe she doesn't spend a lot of time in the library, but she is a cultural librarian 100% of the time.

or calling sir Tim Berners-Lee a web developer.

Oh wait, that actually happened: https://twitter.com/MSalt69/status/476684833221926912

Her dad was also the subject of the book: ‘the soul of a new machine’

A really great book, very entertaining and interesting.

"The soul of a new machine" is one of most interesting books I've ever read.

Do you mean that he was at Data General at the time?

The subject of the book was the machine itself (the so-called "bag on the side of the Eclipse", IIRC).

> Do you mean that he was at Data General at the time?

https://en.wikipedia.org/wiki/Tom_West

I assume he is Tom West, the leader of the team that developed the machine...

Arguably, it is this stereotype that needs to change. She seems to identify with being a librarian, and librarians these days work intensely with digital systems cataloging, digitizing, restoring, and providing access to all kinds of informational media.

Our local librarians are amazing. They help manage/operate the 3D printers including helping you fix/convert your files. They trouble shoot the PCs themselves, help connect people's random devices to the WiFi and manage the network. They know more about the books than I can ever comprehend (oh you're after a book on Japanese wood joinery? Sure 3 aisles down, about halfway down the aisle on the left, 2nd shelf from the bottom!). They're experts on information storage and searching, crafting complex queries in seconds for the various digital databases the terminals offer there. They do kids story times, and manage out of control families and troublesome patrons. All while being the friendliest staff of any Government amenity I've been to.

Such an underrated role in the community.

Agreed. I got a library science degree ~20 years ago and it was more about data structures/organization than "libraries" or "books".

no, it is the stereotypes that are inaccurate. not the article.

it would be more accurate if people stopped believing in stereotypes.

Public libraries themselves are relatively radical anyway. And librarians have often been defending free speech w.r.t. books being banned, and privacy of who read what.

Kudos.

The award seems familiar... a year of lifelock and identity protection, with other future damages still too speculative.

Is lifelock sufficient to prevent malfeasance from stolen SSNs?

I honestly don't know how effective it is, but it is part of the default post breach response.

If it is sufficient, maybe the SSA should just be responsible for providing the equivalent to everyone. That way we can stop expecting unprotectable data to be protected. (Not to let Equifax off the hook, they were the point of failure in this case, but the system is also broken in aggregate.)

Or, if lifelock doesn't work, we should stop pretending it does, and not be satisfied with it as a post breach measure, and not waste money on it either.

Maybe SSA needs to ultimately move to some asymmetric solution like Estonia has. They've had a few bumps with that, but they're trying, and in comparison, we have basically no reasonable answer for situations that require revocation or private/public solutions. (Ie, your public SSN is the last four digits, and your private SSN is shared with almost everyone you transact with. Recommend a system like that to anyone studying information theory and you will get a drink thrown in your face.)

Note, she won $5000, based on what she would have paid to subscribe to a raft of identity protection services. She did not in fact have to subscribe to any of those services to receive the award (and she stated elsewhere in this thread that she didn't do so).

For anyone who doesn't know who Jessamyn West is:

https://en.wikipedia.org/wiki/Jessamyn_West_(librarian)

Anyone know what justifies this uncited claim: "best known as [...] and for her unconventional views on her profession"

Everything librarian-related on that page (anti-censorship, pro-free-speech, pro-privacy) is standard librarian culture that I remember since I was young.

When that article was originally written I think it had to do with coming out very strongly against the USA PATRIOT Act which seems like pretty standard stuff now but in the wake of 9/11 being really mouthy about it was less typical.

So it’s not “a librarian”, but someone with lots of money, education, connections, time...

I borrowed books from her library once

Seems librarianish

Sometimes librarians are also those things.

The title makes it sound like she’s some random Joe. Random Joes don’t have Wikipedia entries.

You are replying to said librarian, fyi.

Jessamyn isn’t a random Joe. But any random Joe can in fact make a Wikipedia entry, as long as it comes with verifiable facts, that’s kind of the point of Wikipedia.

There are almost a million pages for living people, according to this https://en.m.wikipedia.org/wiki/Category:Living_people They’re not all famous, they just usually have publications by them or about them.

That's what I wish Wikipedia was, but unfortunately it's not so: https://en.m.wikipedia.org/wiki/Wikipedia:Notability_(people...

Average Joe has one https://en.wikipedia.org/wiki/Average_Joe

Thank you for your work at Metafilter. Can’t believe I’ve been reading it for like 17 years now. Over half my life!

I also enjoyed this interview: https://medium.com/tilty/transcription-jessamyn-west-technol...

HN Discussion here: https://news.ycombinator.com/item?id=14982844

The floodgates to open soon?

>Though it’s unclear whether Equifax’s bottom line is being affected, news agencies across the country have reported a flurry of class action lawsuits and small claims court cases against the company in recent months. A Stanford University student made headlines nationwide when he created an online application that streamlined the process to file against the company, and some cases reportedly have been resolved against the company for up to $10,000 each.

There could be nothing more satisfying than seeing Equifax washed over by a tsunami of small claims cases.

Is there a how-to out there for filing in small claims court against Equifax?

Dont worry, if it ever does effect equifax's bottom line the government will just award them more contracts....

Equifax is "too big to fail" and the government will ensure it does not

I wouldn't be so sure about that. The phrase "too big to fail" referred to the idea that certain banks are so big that their failure would severely damage the economy, to the point that it was worth propping them up at all costs. Equifax is just a credit reporting agency though, and they're not the only big one that exists, so I doubt the loss of Equifax would cause enough collateral damage to justify a government intervention.

IRS has already granted them millions in contracts Post Data Breach with more on the way

> The phrase "too big to fail" referred to the idea that certain banks are so big

Yes, thank you Mr Technicality for the explanation. The fact of the matter is Crony Capitalism existed before the bank bailouts and continues to exist,

"Too big to fail" is more of a Meme now to refer to the concept of Government bailing out business, and does not refer to a point in history or a single act by government

Don't be so sure of not being so sure about that. The banks that got bailed out certainly weren't the only ones that existed, and in fact there were many more back then than there are now since they used the bailouts to buyout their competition. There are only 3 big 'just a credit reporting agency' megacorps and few smaller contenders. Given that our entire economy now is so heavily driven by debt and credit, it's not a stretch at all to consider that someone could be convinced that it's dangerous to the balance of power and to the economy in general to let one of the Big 3 go under.

"to big to fail" only apply to (big) companies that mainly use debt to finance themselves, and have no assets to sell if they ever "fail" and go bankrupt. Because debt owner then would go bankrupt, and if debt owners are also companies with a huge ratio debt/asset, they would then go bankrupt and so on. So banks.

(NB: i may have misused financial terms as i am not a native speaker)

Your entire rationalization is that 'too big to fail' is all about debt and credit, because that is such an inordinately huge part of today's economy. What business do you think Equifax and its competitors are intimately involved in, if not debt and credit?

> A Stanford University student made headlines nationwide when he created an online application that streamlined the process to file against the company, and some cases reportedly have been resolved against the company for up to $10,000 each.

I’ve tried looking that up. It’s not available anymore

The plaintiff (librarian) has a write up here - https://medium.com/@jessamyn/equifax-statement-for-small-cla... and interestingly says they probably would have been better off if they had paid for credit monitoring and then asking for those dollars back.

I do pay for that ... hmmm ...

Winning is one thing collecting is another. I wouldn't be surprised if Equifax appeals and she never gets paid. I hope she does though!

They sent me a W-9 to fill out. I think they might actually pay.

Encouraging. Please let us know if/when you get a check.

I won against them in small claims in Atlanta, and they sent me a W-9. I refused to fill it out and they still paid, after I got a court order approving a lien against their property. The judgment was for less than $200 though.

(17MS094034, Fulton County Magistrate Court, Georgia.)

How badass is that?

Why did you refuse to fill it out though?

I thought it was unnecessary, because the judgment amount was less than $600, which I believe is the reporting threshold for the payer.

What's a W-9? Tax form for judgement income?

Yep -- if you make over $600 (and mine was $600 + $90 for court costs) they have to send you a tax form and report it.

Future cases matter more than one little payment. For them, the best-case is if this is a one-off. The second-best case is that they can set up and control a processes to pay people off regularly. They will get stingy when they set up that process, and not for the one off payment.

Wonder how it affected her credit rating

So far it is holding firm in the 800+ range. This was part of my deal, my credit rating is GOOD and I'd like to hold on to it.

How do others follow in your footsteps, if that's at all possible? IMHO winning a battle is exciting, but teaching others to win more battles is essential to winning the war.

I feel like a lot of it is changing the discussion. Like not everyone has the money, time and effort to be able to do a small claims thing, but there are a lot of things you can do. Teaching people to pull their credit reports, teaching them about risk assessment (I talk briefly about threat models when I do an online privacy talk at public libraries and I think it's useful to help people figure out "where do I fit into all this?") and how to get more information that they can trust.

And, for this audience especially, try to be supportive and helpful getting people to figure out how to keep their information more private in a way that works for them. Most people aren't techie and that's OK and is going to stay that way. Help them be better at the things they need to do, with good, well-sourced information, don't just holler at them because they write passwords down or don't know the different between their Apple ID and their laptop login. Encourage them to look at the structures that underlie the systems that they use every day (frex: Google is the world's largest advertising agency and that should figure in to personal decisions about how much to interact with them).

Above all, don't just bitch on the internet! I mean, sure do some of that, but that should be the beginning of your work to try to help yourself and other people deal with the situations we're in, not the end.

Nice. Very Vermonty.

Not to say one is better than another, but this guy got $7990 from his case https://blog.legalist.com/i-won-8-000-from-equifax-in-small-...

Sure, but the most important thing here is sticking it to equifax one way or another. They've yet to pay in any meaningful way for their fiasco (put nicely and shit).

I love it when "the little guy/girl" wins!

So, maybe this is a good strategy to put these big firms on notice:

1. Exert plenty of PR pressure to broadcast the wrong that big firm did.

2. Launch tons of small claims court cases.

3. Firms lose money flying paralegals (or other legal staff) around the country for small claims court appearances.

4. Or, these firms lose money paying out all these awards at small claims court.

5. Congress - seeing this widespread ire/angst and related court action - springs into action legislatively, and enacts laws to better protect citizens.

LOL ok maybe that's too fantastically fictional. ;-)

"...5. Congress - seeing this widespread ire/angst and related court action - springs into action legislatively, and enacts laws to better protect citizens...."

...or they spring into action to enact laws to better protect Equifax.

Which do you think is more likely?

Why would Congress do either of those things? Isn't it the judicial system working as intended?

> Isn't it the judicial system working as intended?

If you're a large firm who makes money by gossiping about people, you might be very concerned about it working as intended. They've successfully lobbied for an exception to libel law so you can't sue them for telling lies about you; buying a congressional pass as proof against this sort of responsibility is hardly a stretch.

When the judicial system begins working too efficiently is exactly when the legislative branch often steps in. Think "tort reform" (make it harder for people to sue companies), the legislative immunity for gun manufacturers that immunizes them against product liability, and on the other side of the scale in my mind, the legal prohibition against suing vaccine manufacturers for side effects except through a special "vaccine court".

The legislative branch acts like the game designer of a MMORPG - they are constantly looking at the balance of power and nerfing/buffing as they see fit - and often with what we might consider a distorted sense of "fairness".

Nice one!

Equifax is one of those companies that had a shitty solution to a really important problem. Its like a parasite sucking up money and from its host and not giving any thing to it except a headache. Somehow people in multinational consumer companies and Credit Cards think this parasite should be allowed to exist. Its worth killing this parasite if only to gain a small shot at rethinking the solution to this important problem.

Why are companies paying Equifax if it isn't providing value to them?

In a nutshell, that's difference between capitalism and corporatism / fascism.

Government regulation + monopoly

Equifax provides plenty of value to companies. The problem is that their business model creates massive negative externalities which are borne by individuals who have no business relationship with them. Equifax is analogous to a gross polluter.

Companies like Equifax provide some amount of value somewhere along the line. Better alternatives don't generally succeed in markets like these because those that bear the most cost are not the same as those that capitalize on the value.

I can give you an example of an information market that seems to operate in the same manner: bond rating agencies. I took a class that was taught by a seasoned finance veteran and he told us a story about when he ran the municipal bond desk at his agency. As it turns out, at his and every other finance company he knew, nobody gave any credibility to bond ratings when deciding to invest. Why would they? He told about the time that he called up one of the [well-known] agencies to talk about the rating process and was surprised to discover that they had a grand total of 15 employees for municipal bond ratings.

How are 15 people maintaining accurate ratings for the tens of thousands of municipal bonds??? How can they provide value commensurate to the amount they charge to rate a bond? Well, actually... They don't actually directly charge that much money. The big cost is borne by the city issuing the bond in the form of higher interest rates. But why would a city pay money to have a worthless rating that forces them to pay higher interest rates?

If a city sells a municipal bond and nobody shows up to the sale, did they really sell a municipal bond? Access to the marketplace is the difference between not selling a bond and selling a bond at a high interest rate. The gatekeepers to the marketplace want to have reasonable confidence that the bond is not a scam and reasonable confidence that the bond was issued in good faith. They also do not want to be in the position of deciding which cities should have access to the marketplace. So they've made a simple rule: any bond that gets rated by an agency they recognize can have access to the marketplace. The "value" of the bond rating goes mainly to the companies that make up the marketplace. The "cost" of the bond rating is paid by cities issuing bonds.

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