Former U.S. Treasury Secretary Timothy Geithner angrily warned the chairman of Standard & Poor’s parent that the rating agency would be held accountable for its 2011 decision to strip the United States of its coveted “triple-A” rating, a new court filing shows.
Harold McGraw, the chairman of McGraw-Hill Financial Inc , made the statement in a declaration filed by S&P on Monday, as it defends against the government’s $5 billion fraud lawsuit over its rating practices prior to the 2008 financial crisis.
McGraw said he returned a call from Geithner on Aug. 8, 2011, three days after S&P cut the U.S. credit rating to “AA-plus,” and that Geithner told him “you are accountable” for an alleged “huge error” in S&P’s work.
“He said that ‘you have done an enormous disservice to yourselves and to your country,’” and that S&P’s conduct would be “looked at very carefully,” McGraw said. “Such behavior could not occur, he said, without a response from the government.”
Meanwhile, a few days after Geithner’s phone call, news broke about the SEC launching a preliminary investigation of S&P for insider trading related to the downgrade assessment.
In its lawsuit, the U.S. government accused S&P of hurting banks and credit unions by inflating ratings to win more fees from issuers, and then failing to downgrade debt backed by deteriorating mortgage-backed securities fast enough.
S&P has claimed that the lawsuit was filed in retaliation for the downgrade, and should be dismissed. Its main rating agency rivals, Moody’s Investors Service and Fitch Ratings, were not sued.
U.S. officials have said there was no connection between the lawsuit and the downgrade.
Sure, sure. Also the horse’s head that MacGraw found in his bed was entirely unrelated to the downgrade.