Former U.S. Treasury Secretary Timothy Geithner told McGraw Hill Financial Inc. Chairman Harold W. McGraw III in 2011 that Standard & Poor's downgrade of the U.S. debt would be met by a response, S&P said.

If anyone thinks "Bridgegate" is an example of political bullying and abuse of power, then the sworn (under penalty of perjury) allegation of a corporate heavy hitter against Secretary of the Treasury Timothy Geithner is off the charts. Bloomberg Businessweek reports:

S&P filed a declaration by McGraw yesterday in federal court in Santa Ana, California, as part of a request to force the U.S. to hand over potential evidence that the company says will support its claim that the government filed a fraud lawsuit against it last year in retaliation for its downgrade of the U.S. debt two years earlier. In his court statement, McGraw, 65, said Geithner called him on Aug. 8, 2011, after S&P was the only credit ratings company to downgrade the U.S. debt. Geithner, McGraw said, told him that S&P would be held accountable for the downgrade. Government officials have said the downgrade was based on an error by S&P. "S&P's conduct would be looked at very carefully," Geithner told McGraw according to the filing. "Such behavior would not occur, he said, without a response from the government."

And a very serious "response" from the federal government followed:

The Justice Department last year accused S&P of lying about its ratings being free of conflicts of interest and may seek as much as $5 billion in civil penalties for losses to federally insured financial institutions that relied on the company's investment-grade ratings for mortgage-backed securities and collateralized-debt obligations, or CDOs. The government alleged in its Feb. 4, 2013, complaint that S&P knowingly downplayed the risk on securities before the credit crisis to win business from investment banks seeking the highest possible ratings to help them sell the instruments. Keep in mind that the S&P downgrade of US debt was perceived as harmful to the re-election campaign of President Obama, then underway. If the Secretary of the Treasury actually did what the sworn statement alleges, that would be a very serious abuse of power. Keep in mind that the IRS, which has targeted political enemies of the president, is also overseen by the Secretary of the Treasury.

Harold W. McGraw is the very opposite of a flake, he is the head of a large financial services firm whose reputation for integrity and sobriety is essential to its success. But his allegations have been denied:

Natalie Earnest, a spokeswoman for the Treasury Department, referred questions about S&P's filing to the Justice Department. There's absolutely "no connection" between the downgrade and the lawsuit, Ellen Canale, a spokeswoman for the Justice Department's Financial Fraud Enforcement Task Force, said today in a phone interview. "The allegation that former Secretary Geithner threatened or took any action to prompt retaliatory government action against S&P is false," Jenni LeCompte, a spokeswoman for Geithner, said in an e-mailed statement.

It is very important to get to the bottom of this. The documents demanded by S&P should be handed over, if only to restore public confidence in an agency that should be above reproach. Coimpared to coning off a couple of lanes of traffic on a bridge, these allegations go to the heart of the integrity of the heart of the federal govenrment.





