More Shooting of the Messenger? U.S. Justice Dept. Ready to Bear Down on Ratings Agency

(Update 2)  The U.S. government confirmed what started as widespread speculation from media sources and eventually the defendant, itself, late Monday by filing a lawsuit against one of the "big three" credit ratings agencies.

Just weeks after the European Union voted on measures essentially designed to censor overly-negative analysis, true or not, by the agencies, the U.S. federal government is taking aim, but going after just one of them. Coincidentally (or perhaps not at all), the target is the only of the three agencies to have downgraded the United States’ prized “AAA” credit rating.

Standard & Poor’s, and later the federal government, each confirmed Monday that the U.S. Department of Justice filed suit against the firm in civil court. S&P is being targeted for poor ratings/analytical performance, like others, in the run-up to the 2007 housing collapse that played a role in the eventual downturn, both domestically and internationally. S&P was also accused by some experts of having commercial incentives and an interest in padding the ratings in a positive way because some of the products and services it either sold directly or from which it benefitted.

S&P vehemently denied wrongdoing in a statement Monday and noted that the “failure of virtually everyone” in predicting the full magnitude of the eventual housing downturn. It is worth noting that in August 2011, S&P downgraded the American sovereign credit rating on what it described as unease with a political “brinksmanship” that shook its confidence in the nation’s ability to deal with its large debt with the highest level of proper or efficient manner. It also characterized policymaking among current lawmakers as “less stable, less effective and less predictable” than in the past, which clearly did not sit well at the time and since with members of Congress.  

It’s the latest shot against S&P from sovereignties unhappy with its ratings. The last one, however, involved Moody’s Investment Services and Fitch Ratings as well. EU leaders voted to approve legislation last month that restricts the timetable in which any of the three agencies could release news of sovereign credit ratings related to any member nation in Europe. The regulations would also empower investors with the right to take legal action against the agencies if financial losses could be tied back to vague measures of “gross negligence” or malpractice on the agencies' parts. Statements all but confirmed the leadership collectively was angry at the ratings agencies for lowering the ratings or warning of those with massive and escalating debt problems as well as its desire to “reduce the reliance,” if not importance, of the agencies on the global stage.

-Brian Shappell, CBA, NACM staff writer

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