Leftists love using the phrase “speaking truth to power.” But when Standard and Poor’s, the respected credit ratings service, told the truth about the federal government’s out-of-control spending, power came crashing down on its head.
In August 2011, S&P lowered America’s credit rating below AAA because it found that the government’s ability to manage its finances had become “less stable, less effective and less predictable.” This set off a firestorm within the White House. The Treasury Department publicly attacked the report, and then-Treasury Secretary Timothy Geithner called the CEO of the company and threatened them. According to reports of the conversation, Geithner promised that the company would be “looked at very carefully” and would “be held accountable for that.” Harold McGraw III, the CEO of S&P’s parent company, said in a sworn deposition that Geithner said: “Such behavior could not occur without a response from the government.” The response came; and it was swift, harsh, and costly.
The Obama Administration unleashed Attorney General Eric Holder on the company. In August 2013, the Department of Justice sued the company for fraud in their ratings of mortgage-backed securities in the years leading up to the financial crisis of 2008. According to the DOJ’s theory, S&P ratings of the securities were tied to relationships they had with the investment firms. The government was threating the company with $5 billion worth of fines. There was no mention of the fact that other credit rating services also rated the same securities as safe. The New York Times noted that “S&P, one of three major agencies offering advice to investors about the quality of debt investments and the only one to face a Justice Department lawsuit, stood out as the rare company to actually follow through and fight the government.” It is clear that the actions of the DOJ were in response to the company’s decision to warn Americans about the coming debt crisis.
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S&P decided to fight back by making motions in court demanding documents, emails, and other information connecting the White House, the Treasury Department, and the Department of Justice, in an effort to connect the dots between the credit downgrade and the actions of the DOJ. Not surprisingly, DOJ opposed those motions in court, castigating the effort as a “fishing expedition.” Turning the screws, the DOJ, again in the words of the New York Times, “invoked an obscure federal law passed a quarter-century ago after the savings and loan scandals. The law, the Financial Institutions Reform, Recovery and Enforcement Act of 1989, or Firrea, requires a lower burden of proof than criminal charges and empowers prosecutors to demand unusually large penalties: up to $1.1 million per violation.”
Faced with the threat to the future stability of the company, S&P was forced to settle to get the Obama Administration off their backs. This week, we discovered that the cost of speaking “truth to power” is about $80 million — the amount of money S&P will be forced to fork over to the government for speaking the truth about the country’s financial mess.
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