These are the personal views of Peter Morici, a professor at the University of Maryland’s Robert H. Smith School of Business and former chief economist at the U.S. International Trade Commission:
The Justice Department is accusing Standard & Poor’s Ratings Services of defrauding investors with optimistic ratings of mortgage-backed securities and derivatives prior to the financial crisis. While investors are entitled to answers about those conflicts, compensation and reforms, the attorney general and president, by singling out S&P, instead of other bond raters, appear to be engaging in political vengeance and put freedom of speech at risk.
In 2011, S&P, Moody’s Investors Service and Fitch Ratings were accused by a Senate Committee of giving overly rosy ratings on mortgage-backed securities in the years prior to the financial meltdown of 2008, and then contributing to the severity of the crisis by hastily downgrading hundreds of securities after the housing bubble burst.
Notably, S&P, alone, in August of 2011 downgraded U.S. government bonds–causing the president considerable embarrassment at a time when his re-election was far from certain. And, this downgrade will raise U.S. borrowing costs, and ultimately curtail federal spending and the president’s progressive agenda, when the Federal Reserve deems appropriate to end quantitative easing, which is artificially depressing all interest rates.
Often, federal prosecutors, when several firms have engaged in unsuitable practices, will single out one to obtain damages and reforms, and then use that settlement to obtain concessions from the others; however, the selection of S&P certainly creates the appearance of sovereign and political abuse.
