Politics: Affidavit: Obama Administration threatened S&P after 2011 downgrade | Best of Cain

Politics: Affidavit: Obama Administration threatened S&P after 2011 downgrade | Best of Cain

Politics: Affidavit: Obama Administration threatened S&P after 2011 downgrade

Image Credit: Medill DC via Flickr

Published by: Dan Calabrese on Wednesday January 22nd, 2014

And it made good on the threat with a $5 billion lawsuit.
It hardly comes as a surprise at this point that the Obama White House brazenly bullies those who threaten their political interests. Check with the IRS, Tea Party groups, if you have any questions about that.
But it's still kind of jarring when we receive on-the-record confirmation and details about how this crew operates, and we get that today courtesy of the Wall Street Journal quoting McGraw Hill CEO Harold McGraw, who got an interesting phone call from the-Treasury Secretary Timothy Geithner the day after Standard and Poors (of which McGraw Hill is the parent company) announced the downgrade of the federal government's credit rating in 2011:

In an affidavit filed this week in federal court in the Central District of California, McGraw Hill Chairman and CEO Harold McGraw III describes events in the summer of 2011. On Friday, Aug. 5, S&P stripped the United States of its longtime triple-A credit rating. Mr. McGraw says that on Monday morning Aug. 8, he was told by an official of the Federal Reserve Bank of New York that Mr. Geithner, who had previously run the New York Fed, "was very angry at S&P."
Mr. McGraw says that later that morning Mr. Geithner himself called. Mr. McGraw says that when he returned the call, "Mr. Geithner expressed anger at the downgrade." The two men then argued over whether S&P had made a calculation error, with Mr. McGraw saying that the firm had relied on official statistics from the Congressional Budget Office. According to the affidavit, the Treasury Secretary continued to insist that an error had been made and then told Mr. McGraw: "You are accountable for that."
In his sworn statement Mr. McGraw adds that, "As I reported contemporaneously to my colleagues, [Mr. Geithner] said that 'you have done an enormous disservice to yourselves and to your country', that the U.S. economy was bad and that the downgrade had done real damage. S&P's conduct would be 'looked at very carefully' he said. Such behavior could not occur, he said, without a response from the government."

The government made good on its threat too, filing a $5 billion lawsuit against S&P claiming all kinds of errors in its issuance of credit ratings. Was this an act of retribution? Sure looks like it. Bloomberg quotes more from McGraw's affidavit:

Mr. Geithner expressed anger at the downgrade. In the course of our discussion, he referred to an asserted two trillion dollar error in S&P’s work, an error that he had described in various discussions with the media following the announcement of the downgrade. Having been briefed on the issue by S&P personnel in the wake of those statements by Mr. Geithner, I explained to him that in relying on Congressional Budget Office figures, as it had, S&P had not made an error. Mr. Geithner said that S&P had made a huge error and that “you are accountable for that.” He added that S&P had a previous history of errors and that this was not the first mistake it had made.

You will recall that at the time of the downgrade, Democrats tried to make the case that it had nothing whatsoever to do with the enormous debt the government was and still is racking up, and the complete lack of seriousness in its long-term approach to getting spending under control (which is to say, they had no intention of getting spending under control). In their narrative, the downgrade was solely because the credit rating agencies were horrified that Republicans threatened not to approve a debt ceiling increase, which would have made it more difficult (but not impossible as Democrats claimed) for the government to make its debt service payments, thus raising the spectre of default on the government's debt obligations.
Now granted, a debtor that can't make its debt service payments is a less attractive credit risk, but that was never the threat Democrats tried to say it was. There was always going to be money available from tax revenues to make debt service payments, and in spite of what Obama wants you to believe, Treasury would have made those payments even if it couldn't borrow to do so.
And a credit rating agency doesn't have to analyze CBO projections to issue a downgrade that's solely based on poltical dynamics. S&P downgraded the U.S. because, given the opportunity in 2011 to make a serious change in fiscal policy that would have reduced the accumulation of debt, the political class did not do so. Instead, it announced a classic Washington "budget deal" that pretends it will cut spending down the road, when in fact it will do no such thing and spending will continue unabated.
But regardless of why the downgrade was issued, the White House had no business issuing threats and lawsuits against a credit rating agency for issuing it. S&P has every right to issue its opinion about the credit-worthiness of the United States, and given the nation's long-term debt situation, anyone who thinks the government really deserves a AAA credit rating is insane anyway.
This is what you get, though, when you cross the Obama White House. They insist on keeping that AAA rating no matter what the facts say, and if you don't give it to them, they'll threaten you and make good on the threat. That's what S&P found out when it decided to stop indulging the fantasy that the structure of America's fiscal house is just fine.