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Wealth & Poverty Review The Cost of Speaking Truth to Power

The Wall Street Journal editorial “S&P’s New Payback Evidence” (Aug. 16) notes that federal court Judge David Carter has documents supporting Standard & Poor’s defense that it was singled out and politically targeted by the Justice Department in its $5 billion lawsuit alleging wrongdoing in rating mortgage securities that contributed to the 2008 financial crisis. Moody’s and Fitch provided identical ratings on similar mortgage securities but were never charged. Why?

The DOJ’s lawsuit against S&P as a targeted payback for its downgrading the U.S. credit rating in 2011 is entirely consistent with the Obama DOJ’s pattern of politically motivated actions. The lawsuit against S&P was also an effective means to silence and stop Moody’s and Fitch from downgrading U.S. government debt–and thereby save Barack Obama from the historical ignominy of the president who lost America’s triple-A rating and set the stage for the next financial crisis. Interestingly, only a month before the DOJ filed its lawsuit against S&P, the SEC barred lesser known but respected Egan-Jones Ratings Co. from issuing credit reports on government debt. Like S&P, Egan-Jones had the courage to downgrade U.S. government debt — from triple-A to double-A minus — two notches below the S&P downgrade.

S&P should take this opportunity to educate the American public about the financial ratios that prompted a downgrade of U.S. government debt in 2011, the current status of those same ratios and how U.S. debt ratios stack up against other triple-A rated countries. Bond-rating agencies should be walled off from politics so as to ensure objective analysis on risk factors that politicians would prefer to hide or ignore.

Originally published in The Wall Street Journal.

Scott S. Powell

Senior Fellow, Center on Wealth, Poverty, and Morality
Scott Powell has enjoyed a career split between theory and practice with over 25 years of experience as an entrepreneur and rainmaker in several industries. He joins the Discovery Institute after having been a fellow at Stanford’s Hoover Institution for six years and serving as a managing partner at a consulting firm, RemingtonRand. His research and writing has resulted in over 250 published articles on economics, business and regulation. Scott Powell graduated from the University of Chicago with honors (B.A. and M.A.) and received his Ph.D. in political and economic theory from Boston University in 1987, writing his dissertation on the determinants of entrepreneurial activity and economic growth.