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S&P lawsuit could have chilling impact on U.S. credit, economy

February 5, 2013
Estherville Daily News

In the irony or ironies, the federal government Monday filed a lawsuit against Standard & Poor for allegedly being more concerned with making money than issuing accurate ratings.

The accusation stems from the housing loan default debacle that started the Great Recession. While S&P calls the lawsuit "meritless", Iowa has also filed a similar consumer fraud lawsuit, alleging that S&P improperly gave high ratings on risky mortgage investments. Other states filing suits are Connecticut, Delaware, Illinois and Mississippi.

So what kind of credit rating is S&P going to rate the U.S. government that's $16.5 trillion in debt?

Good question.

It was Aug. 5, 2011 when S&P downgraded its credit rating of the U.S. federal government from AAA to AA+.

It was the first time the government had a rating below AAA.

Now figure this. If S&P gave the U.S. a AA+ credit rating when it was hopelessly in debt, is that really any different than what the government is accusing S&P of right now?

The only thing that makes any sense is that the lawsuit is in revenge for the S&P downgrade of good ol' Uncle Sam.

While Iowa might have the credibility to file a lawsuit, the federal government does not.

It was the federal government, in fact, that created a culture of "equal housing for all", encouraging people through federally subsidized loan programs to buy homes. At the time, this seemed like a good thing. But when the housing market crashed, a lot of people found their homes were not worth nearly what they owed on them.

If S&P survives this one, it will certainly be interesting to see what the next credit rating for Uncle Sam will be.

Even more frightening is the dampening it could have on the overall U.S. economy if the credit rating agency out of self-protection does an across-the-board downgrade of everyone.

 
 

 

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