We all know that the rating agencies were slapping prime AAA ratings on investments that banks were secretly describing as 'turds.' This helped the banks sell risky assets to unsuspecting investors, teachers' pension funds, retirement funds and the like for much more than they would have otherwise got. The banks were happy with the rating agencies and no doubt showered them with "thanks" (cough). That is to say, thanks for not looking into the true risk of these investments and just rubber stamping them safe, so that we are able to get top dollar and sell huge quantities of near worthless paper to the muppets, I mean unsophisticated investing public.
All of the big rating agencies were doing it, maintaining high ratings on CDOs right up until their collapse. This goes for S&P, Moody's, Fitch and several others. So, why then is the Justice Department singling out just S&P in the civil lawsuit announced today?
Forbes attempted to answer this question, but completely blew it. I have no idea how they couldn't make the connection. Or maybe they were avoiding the political incorrectness of biting the hand that feeds.
Either way, I am happy to help. Here it is:
Standard & Poor's was the only major ratings agency to downgrade U.S. debt. On August 6th, 2011, S&P deprived the U.S. for the first time of the triple-A rating it had held for over 70 years. Their justification was that the budget deal brokered in Washington didn't do enough to bring American's fiscal house in order.
And they were right! Here we are again needing emergency measures to lift the debt ceiling and allow the government to continue spending money that it does not have. S&P downgraded long-term U.S. debt to AA+, but even that was probably too little, too late.
This bold move by S&P to downgrade the creditworthiness of the U.S. government for the first time in history absolutely infuriated Washington and all of the pigs eating at the trough of unlimited fiat government money. It was a direct threat not only to the credibility of the U.S. government (or do I contradict myself?), but to something far more precious… the status of the U.S. dollar as the only world reserve currency.
You see, if the rest of the world stop buying into the U.S. government/Federal Reserve Ponzi scheme of a monetary system, the party too must stop. The Fed is already thought to be purchasing up to 70% of U.S. bonds at auction, "monetizing" the soon-to-be worthless paper for which Asian nations have lost an appetite.
How DARE you do that S&P?!?
So now, after a joke of a resolution to the fiscal cliff, promising to cut $1 trillion over 10 years, when we need to cut $1 trillion this year, and using the political process to allow Congress to increase the limit on its already maxed out credit card, agencies are once again threatening to downgrade U.S. debt.
Of course S&P should be downgrading U.S. debt! Has anyone looked at the books lately? Any individual or business that spends this much more than they take it would have been bankrupt and on the street years ago. Yet, when Moody's threatened to join S&P in downgrading U.S. credit last year, they were immediately attached by government media hacks such as Mark Weisbrot, who said:
Moody's threat this week to downgrade the U.S. government's credit rating says a whole lot more about the credit rating agency than it does about the US debt situation. It is really a way of telling the world that Moody's is making a political statement, rather than an assessment of risk for investors who want actual information about US Treasury securities. This is really an embarrassment for Moody's - since they are supposed to be evaluating risk - although most of the media didn't seem to notice.
You should be embarrassed Moody's! Get in line!
I guess one could make the argument that the U.S. will never technically default because it can print as much money as it likes. So there, creditors, it was not a default, we just paid you back with paper notes worth about 1% of the amount you loaned us. All good?
On January 15th, 2013, Fitch finally joined the other agencies in warning of a potential downgrade to U.S. debt. Fitch basically argued that the debt ceiling had to be raised or eliminated to allow for more debt, as a solution to the U.S. debt problem. Bravo sir! I'm not sure how you do it with a straight face, but well done.
All of this talk of other rating agencies following S&P's lead in downgrading the U.S. must have created quite a stir in White House meetings with 'Timmy the tax evader' and the 'Bernank'. White House aides and staffers scrambling frantically for solutions to postpone the inevitable loss of faith in a bankrupt government.
What can we dig up? How can we hold their feet to the fire and get them to obey government?
Oh yes, the rating agencies are also fraudsters that helped bring about the financial crash. I know we told them we would let them off for that whole thing where they gave AAA rating to investments that were highly speculative junk, but what is a promise in Washington, after all? Announce civil charges against S&P and scare the hell out of the others so that not a single one will dare speak again of downgrading U.S. creditworthiness! Punish them sons of bitches at S&P for what they did!
And so it was done. The USA Today reported:
Credit rating giant Standard & Poor's Ratings Services expects to be the first major credit rating firm hit with civil fraud charges by the government over its rating of mortgage-backed bonds that keyed the national financial meltdown, the company said Monday.
S&P said the U.S. Department of Justice had alerted the firm the federal government plans to file a lawsuit focused on the company's ratings of certain U.S. bonds in 2007.
Take this type of political brinkmanship as you will, but for me, it smacks of absolute desperation. It seems that Washington insiders have come to the conclusion that the stability of the U.S. government and financial system is threatened by the ratings agencies. In this case, it is threatened by creditors and citizens knowing the truth about the financial condition of the government.
This should also serve as yet another warning to convert at least some portion of your fiat paper notes into real tangible assets that do not carry counter-party risk. A dollar today will buy you roughly 95% less goods than it would have in 1913. An ounce of gold or silver will buy you the same or more in goods today. Preserve your wealth and protect your hard-earned assets from inflation or the potential of hyperinflation if we continue on our current trajectory.