S&P sued by the government

Last week, news emerged that Standard & Poor, one of the three major credit rating agencies (CRAs) has been sued by the US government for misleading investors. A summary of the case by The Economist can be found here. The multi-billion dollar suit caused S&P's shares to drop some 25% while other ratings agencies' shares suffered similar losses. I have criticized CRAs many times in this blog and elsewhere, and the loosely surfaced evidence from the filing does support the broad criticism concerning CRAs in general. Yet, this heavy handed approach is quite unsettling. First, it seems that the government really went out of its way to punish S&P. The Economist's article highlights that the charges filed in California concern civil fraud, which is important because it is outside the protection of the First amendment that has effectively protected CRAs in the past. More worrying is that among the three main CRAs only S&P has been sued, the only one that has downgraded the US government. When I asked a friend about the case, his reaction was immediate: "the message is: 'Down't dare downgrading the US!'".