Did United States Treasury chief Time Geithner seek revenge on credit rating company Standard and Poor’s through the legal system?
That’s what McGraw Hill Chairman, Terry McGraw, thinks happened after S&P downgraded the United States 60-year-running AAA credit rating to AA+ with a negative outlook.
On Monday, McGraw, in a federal court filing declared that then Treasury Secretary Tim Geithner called him on August 8, 2011 after S&P was the only credit ratings company to downgrade the U.S. debt. McGraw claims Geithner told him that S&P would be held accountable for the downgrade. “S&P’s conduct would be looked at very carefully,” Geithner told McGraw according to the court filing.
McGraw said in his deposition that an angry Geithner said on a phone call that S&P had made previous mistakes and would be “looked at very carefully.” McGraw added that Geithner told him “you have done an enormous disservice to yourselves and to your country” and that the downgrade had caused real damage to the struggling economy. “Such behavior would not occur, he said, without a response from the government.”
Geithner, through a spokesperson, denied any threat was made. The government alleges in its February 4, 2013 complaint that S&P knowingly downplayed the risk on securities before the credit crisis to win business from investment banks seeking the highest possible ratings to help sell the instruments. The justice department accused S&P of lying about its ratings being free of conflicts of interest and may seek as much as $5 billion in civil penalties. No other large ratings agencies were charged at the time.
The declaration filed Monday comes as part of a request to U.S. District Judge David Carter for an order that the Justice Department hand over the documents it seeks for its “retaliation defense.” S&P is trying to force the feds to provide potential evidence that the company says will support its claim that the government filed a fraud lawsuit against it last year in retaliation for its downgrade of the U.S. debt two years earlier. S&P said the government was initially investigating all three major credit rating companies including Moody’s and focused on S&P exclusively after McGraw Hill unit downgraded U.S. debt. S&P downgraded the U.S. credit rating due to its concerns about the political fights surrounding whether to raise the government’s borrowing limit in a timely manner. Harold McGraw III, CEO of S&P parent company McGraw Hill Financial said that two days after this announcement, Geithner called and warned him that the ratings firm had made an error in its analysis and that “you are accountable for that,” according to a legal document filed Monday.
S&P has defended its ratings, noting they were based on the same data and information as other companies and government officials that also concluded that trouble in the housing market would be fleeting.