UPDATE 1-Angry Geithner once warned S&P about U.S. downgrade: filing

Tue Jan 21, 2014 7:35pm EST

By Jonathan Stempel

Jan 21 (Reuters) - Former U.S. Treasury Secretary Timothy Geithner angrily warned the chairman of Standard & Poor's parent that the rating agency would be held accountable for its 2011 decision to strip the United States of its coveted "triple-A" rating, a new court filing shows.

Harold McGraw, the chairman of McGraw-Hill Financial Inc , made the statement in a declaration filed by S&P on Monday, as part of its defense against the government's $5 billion fraud lawsuit over its rating practices prior to the 2008 financial crisis.

McGraw said he returned a call from Geithner on Aug. 8, 2011, three days after S&P cut the U.S. credit rating to "AA-plus," and that Geithner told him "you are accountable" for an alleged "huge error" in S&P's work.

"He said that 'you have done an enormous disservice to yourselves and to your country,'" and that S&P's conduct would be "looked at very carefully," McGraw said. "Such behavior could not occur, he said, without a response from the government."

McGraw said he learned of Geithner's concerns from a message left by a former subordinate at the Federal Reserve Bank of New York, where Geithner had been president in 2008.

A spokeswoman for Geithner said on Tuesday: "The allegation that former Secretary Geithner threatened or took any action to prompt retaliatory government action against S&P is false."

The U.S. Department of Justice, through a spokeswoman, declined to comment. New York Fed spokesman Jack Gutt also declined to comment.

In its lawsuit, the U.S. government accused S&P of hurting banks and credit unions by inflating ratings to win more fees from issuers, and then failing to downgrade debt backed by deteriorating mortgage-backed securities fast enough.

S&P has claimed that the lawsuit was filed in retaliation for the downgrade, and should be dismissed. Its main rating agency rivals, Moody's Investors Service and Fitch Ratings, were not sued.

U.S. officials have said there was no connection between the lawsuit and the downgrade.

S&P has said the downgrade was prompted by concern about Washington's ability to manage the country's debt.

The case is U.S. v. McGraw-Hill Cos et al, U.S. District Court, Central District of California, No. 13-00779.

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Comments (3)
PeterCatranis wrote:
I for one thank you Mr. McGraw for having the courage to downgrade.

Given current economic fundamentals Former U.S. Treasury Secretary Timothy Geithner should be happy that the S&P was so kind.

The U.S. has run the worst budget deficits in its history.

Has a national debt that has exceeded GDP

The lowest yields in history

With the majority of the new issues sold over the last 4 years to the Fed who purchased these new issues to finance record deficit spending with money they created with key punch entries backed by no tangible asset or positive income flow.

Most can’t even remember the last year the US balanced its budget.

Average rates from 1974 (off the gold standard) through 2013

National debt to GDP 1974 = 31.69%
Prime 8.12%
Fed Funds 5.68%
3 Month 5.13%
2 Year 5.91%

Current
National debt to GDP 2013 = 100.46%
Prime 3.25%
Fed Funds 0.07%
3 Month 0.04%
2 Year 0.38%

End QE today and see what the bid-to-cover ratio and the open market’s appetite is for the 75 billion the Fed is currently buying monthly at current rates.

Mr. Geithner what do you think the rating would be today if the Fed had not come to the rescue and put the US Treasury on Monetary life support?

Data sources Bloomberg http://www.bloomberg.com/markets/rates-bonds/government-bonds/us/

St. Louis Federal Reserve http://research.stlouisfed.org/fred2/series/MPRIME

Good Trading,
Peter Catranis

Jan 21, 2014 9:25pm EST  --  Report as abuse
PeterCatranis wrote:
I for one thank you Mr. McGraw for having the courage to downgrade.

Given current economic fundamentals Former U.S. Treasury Secretary Timothy Geithner should be happy that the S&P was so kind.

The U.S. has run the worst budget deficits in its history.

Has a national debt that has exceeded GDP

The lowest yields in history

With the majority of the new issues sold over the last 4 years to the Fed who purchased these new issues to finance record deficit spending with money they created with key punch entries backed by no tangible asset or positive income flow.

Most can’t even remember the last year the US balanced its budget.

Average rates from 1974 (off the gold standard) through 2013

National debt to GDP 1974 = 31.69%
Prime 8.12%
Fed Funds 5.68%
3 Month 5.13%
2 Year 5.91%

Current
National debt to GDP 2013 = 100.46%
Prime 3.25%
Fed Funds 0.07%
3 Month 0.04%
2 Year 0.38%

End QE today and see what the bid-to-cover ratio and the open market’s appetite is for the 75 billion the Fed is currently buying monthly at current rates.

Mr. Geithner what do you think the rating would be today if the Fed had not come to the rescue and put the US Treasury on Monetary life support?

Data sources Bloomberg http://www.bloomberg.com/markets/rates-bonds/government-bonds/us/

St. Louis Federal Reserve http://research.stlouisfed.org/fred2/series/MPRIME

Good Trading,
Peter Catranis

Jan 21, 2014 9:25pm EST  --  Report as abuse
PeterCatranis wrote:
I for one thank you Mr. McGraw for having the courage to downgrade.

Given current economic fundamentals Former U.S. Treasury Secretary Timothy Geithner should be happy that the S&P was so kind.

The U.S. has run the worst budget deficits in its history.

Has a national debt that has exceeded GDP

The lowest yields in history

With the majority of the new issues sold over the last 4 years to the Fed who purchased these new issues to finance record deficit spending with money they created with key punch entries backed by no tangible asset or positive income flow.

Most can’t even remember the last year the US balanced its budget.

Average rates from 1974 (off the gold standard) through 2013

National debt to GDP 1974 = 31.69%
Prime 8.12%
Fed Funds 5.68%
3 Month 5.13%
2 Year 5.91%

Current
National debt to GDP 2013 = 100.46%
Prime 3.25%
Fed Funds 0.07%
3 Month 0.04%
2 Year 0.38%

End QE today and see what the bid-to-cover ratio and the open market’s appetite is for the 75 billion the Fed is currently buying monthly at current rates.

Mr. Geithner what do you think the rating would be today if the Fed had not come to the rescue and put the US Treasury on Monetary life support?

Data sources Bloomberg http://www.bloomberg.com/markets/rates-bonds/government-bonds/us/

St. Louis Federal Reserve http://research.stlouisfed.org/fred2/series/MPRIME

Good Trading,
Peter Catranis

Jan 21, 2014 9:25pm EST  --  Report as abuse
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