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U.S. Attorney General Eric Holder leads a news conference to announced that the United States is bringing a civil lawsuit against the ratings agency Standards & Poor's and its parent company, McGraw-Hill Companies, over its pre-fiscal crisis bond ratings.
That's what Matt Nesto and Jeff Macke at Yahoo Finance think, and you can watch them talk about it here.
The timing of the Justice Department's lawsuit against the credit rating agency — alleging that S&P fradulently overrated numerous mortgage-backed securites in the lead-up to the financial crisis — is a tad suspicious, surfacing as Washington is about to enter what could be a fractious debate over sequestration.
Those automatic cuts could begin March 1 if Congress doesn't resolve or delay them. And hanging over the process, like Damocles' sword, is the threat that S&P in particular will downgrade U.S. debt again, repeating an action that it took after the debt ceiling debate in 2011.
The Justice Department filed its 124-page complaint — which contains enough securities-market abbreviations (RMBS, CDO, SVP...) to thrill even the most jaded of finance geeks — in Los Angeles late Monday. Various reports suggest that state attorneys general will follow suit, with California's Kamala Harris and New York's Eric Schneiderman leading the charge.
California Gov. Jerry Brown speaks in support of Prop. 30 at a rally of UCLA students on campus, Oct. 16, 2012. The passage of the ballor measure in combination with fiscal discipline has led ratings agencies to re-examine California's debt.
Hot on the heels of lowering Illinois' general obligation (GO) bond debt one notch, from "A" to "A-", Standard & Poor's raised California's GO debt to "A" from "A-".
So California is now the second lowest rating U.S. state, among those whose debt S&P rates.
It was S&P's first upgrade for the state since before the financial crisis.
I talked to California Treasurer Bill Lockyer after the announcement, and he credited the combination of Prop 30 — the ballot measure passed last November that raised sales taxes and income taxes on wealthy Californians — along with improved fiscal discipline for prompting the upgrade.
Another agency, Fitch Ratings, is also keeping an eye on California's improving finances. Doug Offerman, an analyst I spoke with last year, wouldn't put a timetable on a possible upgrade, but he did indicate that Fitch likes the math Prop 30 delivers: