Earlier this month Standard & Poor's downgraded the United States' AAA credit rating. The move was immediately derided by an otherwise silent Treasury Secretary Tim Geithner and investor Warren Buffett, who bestowed an unofficial "Quadruple-A" rating on the US. S&P's move was so widely discussed that President Obama took a break from whatever he was doing with his summer to announce that the downgrade, while unjustified, would "give us a renewed sense of urgency."
While the nation is still waiting for that urgency to manifest itself in a jobs program, the Department of Justice is demonstrating an inspiring commitment to shooting the messenger in public. According to sources who leaked the information to various news outlets, the DOJ is "investigating whether the nation's largest ratings agency, Standard & Poor's, improperly rated dozens of mortgage securities in the years leading up to the financial crisis." The article claims this investigation was going on prior to S&P's downgrade of the US less than three-weeks ago.
Here's the thing about witch hunts and propaganda: There's generally a kernel of truth behind them. Standard & Poor's did improperly rate mortgage securities. So did Fitch and Moody's. The DOJ's investigation, such as it was, had been sitting idle for years. The bottom line is that the rating's agencies were exonerated with the defense that their ratings were protected by the First Amendment.
The collective ineptitude of the ratings groups would have faded into the background noise of the shameful housing bubble, along with the executives who won't go to prison, and the banks profiting from betting directly against Main Street, had Standard & Poor's not downgraded US debt. S&P's move was subjective, flawed, and didn't tell anyone anything we didn't know. The downgrade also had no perceptible impact on the US debt markets, other than perhaps driving the price of our debt higher as investors fled from stocks.
S&P is being pursued again for two reasons. First because it's politically expedient to bash S&P. Political hacks are cynically pursuing the votes of the financially unsophisticated by finding a scapegoat for Main Street's woes. The second related reason for the headline is the government sending a message to those with the temerity to exercise their First Amendment right to rage against the political machine.
Last month Jon Najarian and I debated whether or not the ratings agencies would have the "guts" to downgrade the US. Najarian noted that the agencies were under significant pressure not to do so. It seemed a strange idea to think that real political figures would actually make threats to freestanding companies going about their business. To many observers, Dr. J and I were trafficking in conspiracy theories and innuendo even suggesting the government would find a way to punish any ratings agency which would dare downgrade the US. Of course that's the thing about conspiracy theories; just like witch hunts and propaganda, there's always a kernel of truth.
The government has much better things to do than muscle ratings agencies. We need jobs, a budget, and a plan. Alas, the only thing the government seems to really have a sense of urgency about, is destroying the messenger. Selling pitchforks and stirring up the masses may be the only jobs being created by DC this summer, but at least they're good at it.