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Comment by ethbro | Hacker News Reader

What legal agreements actually exist between ratings agencies and their consumers?

As I understand it, there are legal agreements that take ratings as an input (e.g. a pension may only invest in investment grade bonds).

But is there actually any way for a consumer to sue Morningstar? Or are their ratings essentially just "proprietary numbers", no warranty given?

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Based on the consequences to the ratings agencies of fraudulently (or erroneously) rating mortgage debt in 2000s, there are no laws requiring ratings agencies to be accountable to anyone.

The sellers of the debt, or financial products, are the ones that pay the ratings agencies, so they are the real customers.

The buyers should be doing due diligence, especially considering the conflict of interest, but they are also frequently agents on behalf of taxpayers (for government pensions) or other far removed investor, so agency risk is big here too.

Morningstar is just putting information out there, they have all sorts of language saying they are not giving you investment advice so there isnt much recourse there as far as I am aware (but I am far from a lawyer). The pensions may only invest in X are hard guidelines so certainly a manager would be in trouble if they violated that but that would be rare, much more likely a manager would just be holding more borderline IG paper and trying to look like they have better IG paper in aggregate.

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