Feds File Suit Against Agency That Downgraded US Credit Rating

Last year Standard & Poor made headlines by downgrading the US credit limit. The Obama administration wasn’t happy, and now the federal government is suing claiming that the company didn’t property rate mortgage bonds during the subprime housing loan bubble:

WASHINGTON (TheBlaze/AP) — The U.S. government is accusing the debt rating agency Standard & Poor’s of fraud for giving high ratings to risky mortgage bonds that helped bring about the financial crisis.

The government filed a civil complaint late Monday against S&P, the first enforcement action the government has taken against a major rating agency related to the financial crisis.

S&P, a unit of New York-based McGraw-Hill Cos., has denied wrongdoing. It says the government also failed to predict the subprime mortgage crisis.

S&P may have a point. Anyone else remember politicians like Rep. Barney Frank denying the existence of the housing bubble?

Did S&P rate subprime mortgage bonds inappropriately? Maybe, but that’s a bit like blaming a car company for drunk driving crashes. The federal government was in the driver’s seat on the subprime mortgage market. They were the ones pushing lenders to make those loans. They were the ones using government sponsored entities like Fannie Mae and Freddie Mac to buy up the subprime loans.

The housing bubble happened because of government policies, not banking greed.