Why Is The Government Suing S&P But Not Moody’s?


President Downgrade’s administration is suing S&P for its ratings of mortgage backed securities – which came about because of the government’s insistence that banks provide loans to people who couldn’t afford them – but it has dropped its investigation into Moody’s. Hmmm. I wonder why. Could it be that the S&P downgraded the credit rating of the United States and the thugs in our government are out for revenge?

This may be why the SEC, which had been investigating the credit raters, is not part of this week’s lawsuit. Justice is instead trying to break new ground by using a 1989 statute intended to prevent bank fraud. Since federally insured financial institutions were among those who relied on credit ratings, argues Justice, S&P can be charged with fraud.

The suit names a specific credit union in California as an alleged victim. In other words, the government that keeps blaming the bankers for the crisis is now painting banks as the victims of rating agencies whose opinions the banks were ordered by the government to follow.

There are other disturbing questions related to the timing and the target of this federal civil prosecution. S&P’s attorney Floyd Abrams tells us that “things seemed to rev up in terms of the intensity” of the federal investigation after S&P’s historic downgrade of United States credit following Washington’s debt-limit fight in 2011.

Meanwhile, a McClatchy Newspapers report says that it was around that time that Moody’s, which did not downgrade the government, was dropped from the federal investigation. Ask any investor and he’ll likely tell you that Moody’s was equally awful in forecasting the mortgage debacle.

Speaking of the debt-limit fight, that’s also coincidentally when White House Chief of Staff Jack Lew was aggressively promoting the President’s campaign to prevent entitlement reform. Mr. Lew had worked in the heart of Citigroup’s subprime investment factory, and the President has not only been willing to forgive and forget. He’s even nominated Mr. Lew to become Secretary of the Treasury. But the company that put a shot across the Beltway bow over deficit spending is now the only target of a credit-ratings prosecution.

Read the whole thing.