U.S. Suing S&P Smacks of Political Retribution

NEW YORK (TheStreet) -- The Justice Department is accusing Standard & Poor's of defrauding investors with optimistic ratings of mortgage-backed securities and derivatives prior to the financial crisis. While investors are entitled to answers about those conflicts, compensation and reforms, the attorney general and president, by singling S&P out of the field of bond raters, appear to be engaging in political vengeance and putting freedom of speech at risk.

In 2011, S&P, Moody's and Fitch were accused by a Senate Committee of giving overly rosy ratings on mortgage-backed securities in the years prior to the financial meltdown of 2008, and then contributing to the severity of the crisis by hastily downgrading hundreds of securities after the housing bubble burst.

Notably, S&P, alone, in August of 2011 downgraded U.S. government bonds -- causing the president considerable embarrassment at a time when his reelection was far from certain. This downgrade will raise U.S. borrowing costs, and ultimately curtail federal spending and the president's progressive agenda, when the Federal Reserve deems appropriate to end quantitative easing, which is artificially depressing all interest rates.

Often, federal prosecutors, when several firms have engaged in unsuitable practices, will single out one to obtain damages and reforms, and then use that settlement to obtain concessions from the others; however, the selection of S&P certainly creates the appearance of sovereign and political abuse.

By any reasonable measure, U.S. debt and spending has reached an unsustainable level. Simply, the tax increases necessary to bring the federal deficit down to a level that would stabilize the national debt as a percentage of GDP, would certainly cause a deep recession, similar to conditions in Italy or Spain, and not yield the anticipated revenue. Hence, spending, in particular entitlement spending, must be cut; however, the president has neither admitted this situation nor shown any inclination toward real entitlement reform.