US credit agency learns the Chicago-way

The US business community is learning not to mess with “da boss”.

Standard & Poor’s on Tuesday blasted a $5 billion fraud lawsuit by the U.S. government as retaliation for its 2011 decision to strip the country of its AAA credit rating.

The McGraw Hill Financial unit was the only major credit rating agency to take away the United States’ top rating and the only one sued by the Department of Justice for allegedly misleading banks and credit unions about the credibility of its ratings before the 2008 financial crisis.

In a filing with the U.S. District Court in Santa Ana, Calif., S&P said the lawsuit attempts to punish it for exercising its First Amendment free speech rights under the U.S. Constitution but also seeks “excessive fines” in violation of the Eighth Amendment.

It said the government’s “impermissibly selective, punitive and meritless” lawsuit was brought “in retaliation for defendants’ exercise of their free speech rights with respect to the creditworthiness of the United States of America.”

What is the real US credit rating if it was unaffected by political pressure?

Perhaps shockingly, most of these estimators come up with a score of around 650 (with a range of 625 to 720). That is basically in the middle of the range, and consistent with the recent rating on U.S. debt of A+ by China’s Dagong Global, the only non-U.S. credit rating agency that seems to draw much interest or credibility. By comparison, countries like Norway, Switzerland and Singapore score an AAA from Dagong, and the United States is largely on par with Japan, France and Britain in Dagong’s scoring.

Dagong is dismissed by the sycophant AP as a “little-known Chinese ratings agency” even though it is regarding as a notable non-US credit rating agency. Additionally the “U.S. Securities and Exchange Commission has refused to recognize Dagong’s ratings because of the commission’s inability to supervise the Beijing-based agency”, read exercise political control, which is puzzling because in 2010 “Chinese credit rating agency Dagong Global Credit Rating … said it might delay its American credit rating market entry plans, after the US government rebuffed its application earlier this year.” Credit is the lifeblood of the economy and credit agency are the designated gatekeepers, so US has vested interest in ensuring control over them.

As an aside, if you are lending money, who would you rely on to ascertain the credit worthiness of the borrower – your credit rating agency or the borrower’s credit rating agency?