Former U.S. Treasury Secretary Timothy Geithner angrily warned the chairman of Standard & Poor’s parent that the rating agency would be held accountable for its 2011 decision to strip the United States of its coveted “triple-A” rating, a new court filing shows.
Harold McGraw, the chairman of McGraw-Hill Financial Inc , made the statement in a declaration filed by S&P on Monday, as it defends against the government’s $5 billion fraud lawsuit over its rating practices prior to the 2008 financial crisis.
McGraw said he returned a call from Geithner on Aug. 8, 2011, three days after S&P cut the U.S. credit rating to “AA-plus,” and that Geithner told him “you are accountable” for an alleged “huge error” in S&P’s work.
“He said that ‘you have done an enormous disservice to yourselves and to your country,’” and that S&P’s conduct would be “looked at very carefully,” McGraw said. “Such behavior could not occur, he said, without a response from the government.”
First, I should note one thing: Geithner was right, as it happened. S&P had a made a $2 trillion error in their calculations. They stand by their rating, citing the bad environment in Washington and bad budget outlook.
Second, the threat itself doesn’t matter too much to me. I would expect any Treasury Secretary, faced with a potential downgrade, to scream blue murder and/or try to talk the rating agency out of it.
Third, the $5 billion lawsuit against S&P is long overdue. It is now well know that the ratings agencies avoided looking too deep into the CDO’s, in particular, giving AAA ratings to what were, in reality, massive piles of high-risk mortgages. It is documented that auditors at the agencies were told not to look into the securities they were rating lest the lucrative derivative market dry up. People like John Paulson and Michael Burry, who did their homework, made massive fortunes betting that the towering piles of shit S&P was giving AAA ratings to were going to fall over. And men like Howie Hubler, who didn’t and relied on S&P, lost billions inadvertently betting piles of mortgages against themselves.
So, Geithner was right about S&P, complaining about the downgrade was reasonable and S&P are a bunch of crooks. So nothing to see here, right?
Here’s the problem: the lawsuit came after S&P’s downgrade. And Moody’s and Fitch, who were just as complicit in the meltdown as S&P, have not been sued. When you throw into this mix that Mark Zandi, one of the founders of Moody’s and someone who completely missed the real estate bubble, has been spending the last five years peddling Obamanomics, making bullshit economic projections to support Obama’s policies and doing everything he can to support their Keynesian nonsense … well, it does start to look a bit suspicious, doesn’t it?
Obama has done very little to punish the high-end crooks for their part in the meltdown. I think we’re beginning to see why. Because most of them have played ball with the Administration. S&P hasn’t. And so, for once and for entirely the wrong reasons, the Administration is doing the right thing.
No, the scandal is not that S&P is being sued. The scandal is that everyone else isn’t. Because as far as this Administration is concerned, you can lie to investors and creditors; you can fail to do anything approaching your job; you can bilk people out of billions. But don’t you dare contradict the Administration on economics. That’s serious.