S&P chief: Geithner warned me of federal response to downgrade

Treasury Secretary Timothy Geithner told Standard & Poor’s that its historic downgrade of the nation’s credit rating would be met with a response from the federal government, according to a new court filing.


Harold McGraw III told a U.S. district court that days after S&P decided to lower the nation’s rating after the 2011 debt-limit battle, Geithner personally told him the rater’s actions were “an enormous disservice” to the firm and the nation, damaged the economy and would be met with a government response.

McGraw is the chairman of McGraw Hill Financial, which owns S&P.

In the filing, McGraw said Geithner told him “S&P’s conduct would be ‘looked at very carefully.’ ”

“Such behavior could not occur, he said, without a response from the government,” McGraw added.

The filing was first reported by The Wall Street Journal.

In 2013, the Justice Department filed suit against the rater for its role in providing top-shelf ratings to risky products leading up to the financial crisis, seeking as much as $5 billion in damages.

Credit raters have come under heavy scrutiny since the collapse, as they gave out premium ratings to products filled with risky mortgages that ended up worthless. S&P, along with fellow raters Fitch Ratings and Moody’s Investors Service, have all been scrutinized by congressional panels and outside critics. But only S&P thus far has faced charges from the government.

Officials with the Justice Department have previously dismissed claims the charges were punishment for the downgrade, although S&P has argued as much in court.

And a spokesperson for Geithner denied there was any threat of retaliation made during the exchange.

"The allegation that former Secretary Geithner threatened or took any action to prompt retaliatory government action against S&P is false," said Jenni LeCompte, Geithner's spokesperson.

According to the filing, McGraw said he first received a message from Terrence Checki, then an executive vice president at the New York Federal Reserve Bank. Checki told McGraw that he was delivering a message on behalf of Geithner, who was “very angry” at the rater and said the downgrade decision as flawed. He also said Geithner wished he had been given advance notice of the pending decision.

McGraw then spoke to Geithner himself, who “expressed anger at the downgrade.”

Geithner said the downgrade did damage to the U.S. economy, and charged the firm with making a significant mathematical error in justifying the downgrade from AAA status to AA-plus.

Immediately after the downgrade was announced, Treasury officials under Geithner were quick to criticize the rationale. The downgrade announcement was actually delayed after the Treasury highlighted a $2 trillion mathematical error. The rater acknowledged the error, but stuck with the downgrade, citing the toxic political atmosphere in Washington.

In his filing, McGraw said S&P was relying on figures from the Congressional Budget Office, and had not made the error.

Geithner left the Treasury Department at the beginning of 2013. 

This post updated at 7:21 pm.