A dour President Obama was in no mood to hear about Wall Street’s troubles. “My administration is the only thing between you and the pitchforks,” he warned a room full of the nation’s banking titans.
They’d been summoned to the White House woodshed over what Dear Leader had decided was excessive compensation for industry execs. The president had been on the job for less than three months, but his community-organizer roots were already showing: the fraudulent narrative — in this instance, “income inequality” — helped along by whatever arm-twisting the occasion required. The narrative camouflages execution of the statist game-plan: (1) government creates problem, (2) government locates scapegoat, and (3) government exploits scapegoat to juxtapose itself as savior — rationalizing more regulation and more power.
The pitchfork imagery leapt to mind this week because Timothy Geithner, Obama’s tax-challenged former Treasury secretary, was back in the news — specifically, the extortion news. Turbo Tim had been in the room back in 2009, absorbing the boss’s lesson in Alinsky-style government-corporate relations. Now we learn, at least according to Standard & Poor’s top honcho, that Geithner made the Obama method his own.
In an affidavit filed in a California federal court, S&P chairman Harold McGraw III alleges that on August 8, 2011 — i.e., when the Obama reelection campaign was gearing up — Geithner tracked him down by phone. The then-secretary was irate because, three days earlier, S&P had downgraded the credit rating of the United States to a notch below triple-A for the first time in history. McGraw had been forewarned by a Geithner associate that the secretary “was very angry at S&P.” When the two men finally spoke, Geithner ripped McGraw for having “done an enormous disservice to yourselves and to your country.” He further warned that S&P’s insolence — er, I mean, S&P’s decision — would “be looked at very carefully” and would prompt “a response from the government.”
That “response” came in the form of a punitive lawsuit, brought by the government against S&P. At least that’s the way S&P sees it, with what appears to be ample reason.
McGraw, it is worth noting, is hardly a tea-partying Obama basher. He runs in the Geithner-trod circles of international finance and, in 2009 — at around the same time the president held his sweat session with the bankers — Obama made McGraw his appointee to the U.S.-India CEO Forum. While there is not likely to be a recording of the phone call with Geithner, it seems a stretch to think McGraw made the whole thing up. The statement submitted in the lawsuit this week is under oath — i.e., subject to penalty of perjury if proven false. McGraw also recalls immediately telling colleagues about it, suggesting there are probably contemporaneous notes corroborating his account.
And beyond that there is what cannot be disputed: Within days of the call, the New York Times was reporting that the Obama-Holder Justice Department was investigating S&P. In short order, Justice filed a civil lawsuit against S&P, alleging fraud — a subject in which this administration is well versed — and seeking a ruinous $5 billion in damages.
The dispute oozes intrigue. For starters, the fraud claimed by the Obama administration has nothing, ostensibly, to do with the downgrade. Instead, the Justice Department reached back several years, to S&P’s activities before the 2008 financial meltdown. Of course, the root cause of that crisis was government coercion of the financial sector. Uncle Sam pressured financial institutions to extend mortgages to poor credit risks — pressure that left-wing activists, such as a young lawyer named Barack Obama, capitalized on by bringing lawsuits that alleged racial discrimination against reluctant lenders.
Ever since the mortgage bubble exploded, Washington has searched every place but within for a scapegoat. Among the most inviting targets are the credit-rating agencies — not just S&P but Moody’s and Fitch. Like bankers, they are not very sympathetic victims. They were content to ride the government-conducted gravy train while it lasted, lavishly paid by banks that courted them to look favorably on securities backed by the suspect mortgages. The pols happily facilitated this doomed arrangement, taking credit for promoting the dream of home ownership while raking in donations from the rigged system’s flush players.
But since the bottom fell out, taking the economy with it, the catastrophe’s architects have used their control of government’s law-enforcement powers to turn on their former accomplices. There have been investigations against banks for making irresponsible loans, and against rating agencies for encouraging the recklessness.
As the Wall Street Journal drily notes, the banks that marketed mortgage-backed securities are alternatively portrayed as perps or dupes depending on the Justice Department’s whim in any given case. The contradictions plaguing the government’s desperation to find a suitable culprit are no more surprising than DOJ’s inability to rack up convictions commensurate with the wreckage. It is hard for the government to prosecute people who have a credible “the government made me do it” defense.
This, however, is not the most notable contradiction in Justice’s jihad against S&P. That distinction belongs to the absence of an obvious co-defendant: Moody’s. If providing imprimaturs for securities backed by bad loans were a game of “anything you can do, I can do better,” S&P would probably have been bested by its top competitor. Moody’s appears to have been every bit as biddable towards its bank clients, and as delusional in grading their shaky securities, as S&P is alleged to have been. Indeed, after the crash, both rating agencies were investigated by the FBI, the SEC, and state investigators, both (along with another rater, Fitch) were sued by the states of New York and Ohio, and both were grilled by Congress.
Yet, only S&P was sued by the Justice Department — and only after the downgrade. Moody’s, a chunk of which is owned by Berkshire-Hathaway, the conglomerate run by Obama pal Warren Buffett, decided not to downgrade the U.S. credit rating in 2011, notwithstanding the government’s patent unseriousness about our astronomical debt load and the rating agencies’ post-meltdown promises to be more rigorous in their assessments. By sustaining the triple-A rating, Moody’s enabled the Obama campaign to dismiss S&P’s downgrade as an outlier. And, shocking as this may seem, the Justice Department elected not to slap Moody’s with a $5 billion lawsuit. The pitchforks aim only at S&P.
Of course, the fact that Moody’s slipped the noose does not make S&P innocent. It may be that both of them — along with the banks, the regulators, and the Beltway social engineers — were fraudulent, or at least grossly negligent. If, as some experts suggest, Moody’s was even more culpable than S&P in hawking mortgage-backed securities, its absence from the suit is the case’s second greatest irony.
The first is the Obama administration’s accusation that S&P carried out a scheme to defraud based on what prosecutors describe as “repeated” misrepresentations. Whether the rating agency made the product seem too good to be true, and whether the sophisticated financial players in this market were actually swayed by such falsehoods, remains to be seen. But I’m betting that whatever S&P said couldn’t hold a candle to “If you like your health-care plan, you can keep your health-care plan, period.”
I’m also thinking that, between the pitchforks, the vengeful Treasury secretary, the not-so-mysteriously missing defendant, and the fraud stones being tossed from a glass White House, this case could be a hoot . . . especially for the defense lawyers.