If you’re going to trade punches with Uncle Sam, you’d better be able to pack a wallop. It isn’t clear yet if Standard & Poor’s Ratings Services will prove to bring a haymaker in its new action against the federal government, but it clearly is engaged in a heavyweight fight.
To wit: S&P has sued the government because the feds filed a $5 billion lawsuit against S&P in what S&P is calling “retaliation” for the company’s downgrade of America’s debt in 2011. The United States had accused S&P of misrepresenting its rating process in the years before the financial crisis to federally insured banks and credit unions that were buying debt, a charge that S&P has called “meritless.”
Now S&P, a unit of McGraw-Hill Cos., alleges that the governent’s suit amounts to an attempt to breach free speech, which a Justice Department spokeswoman called a “preposterous” charge, according to the Wall Street Journal. So the sides can be considered even in their “well-I-never” rhetoric.[more]
One thing is for sure: The Obama administration knows the power of S&P. When the ratings agency stripped the US of its triple-A rating in August 2011, it was the first downgrade of America by a bond-rating company in decades and sent the stock markets skidding. It also was a blow to the credibility of both President Obama and Congress as they continued to fight over what to do about the nation’s debt load.
S&P said that its ratings opinions are protected by the First Amendment and that the Justice Department suit is unconstitutional because it is retaliatory for the agency’s downgrade of US debt. For its part, the government is insisting that it sued S&P to demonstrate that it is holding institutions accountable for the 2008 financial crisis, in that banks and credit unions took huge losses on mortgage-linked securities that had been over-rated by S&P.
If considered as a contest between brand equities, and not as a comparison of resources available to fight a law suit, S&P could have a case. It has continued over the last couple of years as a credible source of investment opinion, feared and courted by companies and governments alike. Meanwhile, Uncle Sam has continued to suffer in the court of public opinion.