What Did Obama Tell Geithner about S&P?
The former Treasury secretary's famous call came five minutes after a meeting in the Oval Office.
By JAMES FREEMAN CONNECT
Updated Feb. 25, 2014 7:46 a.m. ET
Last month we wrote about the threatening phone call from then-Secretary of the Treasury Timothy Geithner to the head of the parent company of Standard & Poor's after S&P downgraded the U.S. credit rating in 2011. Now we learn that Mr. Geithner placed the call to McGraw Hill Chairman and CEO Harold McGraw III just five minutes after leaving an Oval Office meeting with President Barack Obama.
This detail, drawing on information contained in Mr. Geithner's public schedule, was included late yesterday in a filing by S&P in federal court in the Central District of California. The Department of Justice is suing S&P for $5 billion for alleged fraud in S&P's ratings on mortgage-backed securities during the housing boom. But DOJ is not suing the other credit rating agencies that issued similarly awful ratings. Since only Standard & Poor's downgraded the U.S., S&P says it is suffering from retaliation.
Yesterday's filing came in response to government efforts to avoid turning over documents related to the Geithner communication to S&P. According to a sworn affidavit from Mr. McGraw filed with the court last month, Mr. Geithner "said that 'you have done an enormous disservice to yourselves and to your country', that the U.S. economy was bad and that the downgrade had done real damage. S&P's conduct would be 'looked at very carefully' he said. Such behavior could not occur, he said, without a response from the government."
Along with stonewalling S&P's request for staff documents surrounding this event, the feds are also refusing to turn over material related to the giant banks that the government has cast as victims for the purposes of winning this case against S&P. The ratings firm wants to know if these firms really believed they had been defrauded by S&P, but not by competitors Moody's and Fitch.
Since the government is the one suing for billions, we don't understand how it can continue to prevent the defendant from gaining material relevant to its defense.