S&P Lawsuit Raises Questions About Feds’ Motivations

The paper also raises the question of whether or not the action is politically motivated payback for S&P’s downgrade of government debt last summer to AA+ from AAA.

“There are other disturbing questions related to the timing and the target of this federal civil prosecution,” the Journal writes.

S&P’s attorney Floyd Abrams told the papers that “things seemed to rev up in terms of the intensity” of the federal investigation after S&P’s historic downgrade of U.S. credit following Washington’s debt-limit fight.

Meanwhile, the Journal points to a McClatchy Newspapers report that says “it was around that time that Moody’s, which did not downgrade the government, was dropped from the federal investigation. Ask any investor and he’ll likely tell you that Moody’s was equally awful in forecasting the mortgage debacle.”

S&P, for its part, denies the government allegations, calling the claims that it deliberately kept ratings high when it knew they should be lower are “simply not true” and that they will “vigorously” defend themselves against these “unwarranted claims.”

“Although we deeply regret that these 2007 CDO ratings did not perform as expected, 20/20 hindsight is no basis to take legal action against the good-faith opinions of professionals,” the company argues. “The fact is that S&P’s ratings were based on the same subprime mortgage data available to the rest of the market—including U.S. government officials who in 2007 publicly stated that problems in the subprime market appeared to be contained.”