From Benghazi to the IRS there are plenty of ugly scandals that the Obama Administration found itself embroiled in. However, there is one scandal that received very little press but was the most glaring and potentially the most threatening to his presidency…The Standard & Poors Scandal.
My advance apologies to anyone familiar with Standard & Poors (S&P). S&P is a rating agency and rating agencies are responsible for letting investors know credit worthiness. By way of example, Standard & Poors top rating is ‘AAA’ meaning the creditor has an extremely strong capacity to meet financial commitments. Their lowest rating is ‘D’ for default. A ‘BBB’ rating means adequate capacity to meet financial commitments. Any rating less than “BBB” is considered not to be investment grade and any ratings BBB or above is.
At the height of the housing bubble S&P was frequently giving ‘AAA’ ratings on housing debt that eventually defaulted. However, the same can be said of all the rating agencies. There are many analysts that believe the rating agencies are the most to blame for the great recession, because without their blessing all of those securities would have been unsalable. I think it was a group effort with Fannie Mae being my top choice for most responsible, but I digress.
On August 5th 2011 S&P downgraded the U.S. Credit Rating from ‘AAA’ to ‘AA+’. None of the other ratings agencies downgraded US creditworthiness. The ratings downgrade brought plenty of negative attention on the Obama Administration and put our financial health on notice that things were deteriorating. In addition, the downgrade occurred just days after a debt ceiling vote. Immediately following the downgrade the stock market declined by over 5%.
Two weeks after the August 2011 S&P downgrade, SEC and Department of Justice announced that S&P was under investigation. On September 19th, 2013 the Department of Justice (DOJ) filed a lawsuit against S&P for its actions during the housing boom. None of the other ratings agencies were sued despite the fact all of them were giving investment grade ratings to what eventually became junk.
S&P claims the lawsuit was a politically motivated retaliation for the 2011 downgrade and counter sued the DOJ. Translated: the Obama administration used the DOJ to silence and intimidate a private business…a business that’s in the business of merely providing opinions.