The federal government’s lawsuit against ratings agency Standard and Poor’s has been hit by a potential bombshell. In January, the Wall Street Journal reported that Harold McGraw III, Chairman and CEO of S&P’s parent company, testified that after the agency downgraded the nation’s triple-A credit rating, he received a telephone call from then-Treasury Secretary Tim Geithner saying the ratings agency would be “looked at very carefully.”
On Monday, the Wall Street Journallearned that the call between Geithner and McGraw occurred only five minutes after Geithner met with President Obama in the Oval Office.
S&P, which garnered the information by examining Geithner’s public schedule, included it as part of a filing in federal court in the Central District of California. They contended that the timing of the Obama-Geithner conference could support the idea that they were singled out for retaliation, rather than the government’s claim they are guilty of fraud. Unsurprisingly, the Justice Department is accusing the agency of a “fishing expedition” and is urging U.S. District Judge David Carter to deny them access to the records.
In the January affidavit, McGraw submitted a sworn statement to the court, describing an unsettling chain of events that began with S&P’s U.S. debt downgrade, issued on August 5, 2011. He contends that on August 8, he was informed by an official from the Federal Reserve Bank of New York that Geithner “was very angry at S&P.” Geithner who had previously run the New York branch of the Federal Reserve, allegedly called McGraw. When McGraw returned the call, Geithner allegedly “expressed anger at the downgrade.” An argument ensued, with former Treasury Secretary contending that S&P had made an error in their assessment. McGraw countered that the agency had relied on official statistics provided by the Congressional Budget Office. According to the affidavit, Geithner continued to insist that S&P had made an error. “You are accountable for that,” he allegedly warned McGraw.
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