And who is that scapegoat? Is it former President George W. Bush, who presided over the housing bubble and crash? Is it former President Bill Clinton or former Clinton/Obama advisor Larry Summers, who were in charge of things when Gramm-Leach-Billey was signed into law in 1999? Or perhaps then-Senator Chris Dodd (D-CT), who received special treatment from Citigroup for a loan, or the executives of Freddie Mac and Fannie Mae, including the one who engaged in a sexual relationship with then-Rep. Barney Frank (D-MA) while Rep. Frank was the Ranking Member of the House Financial Services Committee?

Nope. It’s S&P, which the government wants punished for giving glowing reviews to mortgage-backed securities:

The Justice Department filed a lawsuit late Monday in Los Angeles federal court against Standard & Poor’s Corp. The suit accuses the company’s analysts of issuing glowing reviews on troubled mortgage securities whose subsequent failure helped cause the worst financial crisis since the Great Depression.

The action marks the first federal crackdown against a major credit rater, and it signals an untested legal tack after limited success in holding the nation’s banks accountable for the part they played in the crisis.

The government selected Los Angeles as the venue to file the lawsuit in part because it was one of the regions hardest hit when the bottom fell out of the housing market. Hundreds of thousands of California residents lost their homes to foreclosure, and others saw their wealth evaporate as properties plummeted in value.

DOJ is going all-out:

The Justice Department appears to be pulling a new arrow from its quiver in cases stemming from the financial crisis.

While the government has not formally announced the case, S&P said it expected the department to sue under the Financial Institutions Reform, Recovery, and Enforcement Act, a law spawned by the savings and loan crisis of the late 1980s.

The law could allow the Justice Department to exact hefty penalties — not just fines for individual cases where the ratings agency slapped sterling AAA ratings on junk, but also payback for financial losses incurred by victims, Manns said.

“Because there has been no meaningful way to hold ratings agencies accountable, if the DOJ can pursue these types of actions in the future, this would have a substantial deterrent effect on the industry,” Manns said.

If this lawsuit had happened before the 2011 downgrade of the U.S. credit rating by S&P,, there might be some way for the government to claim it was holding companies responsible for the economic crash. But while executives and former executives of banks walk free with huge bonuses, targeting S&P 18 months after the downgrade looks like revenge from the Administration.

Ed Morrissey summarized it well at Hot Air:

This lawsuit is breathtaking in its hypocrisy.  After all, S&P didn’t issue mortgage-backed securities and insist that the housing bubble could go on forever.  The MBS blizzard came from the two GSEs, Fannie Mae and Freddie Mac. Congress authorized them to securitize the paper they bought from lenders in order to encourage riskier loans to buyers who otherwise wouldn’t have qualified for home loans. And that was motivated not by normal regulatory concerns or “good faith,” but by political considerations and a desire by both Democrats and Republicans to conduct social engineering rather than regulate rational markets.

It was Congressional intervention, not S&P, that fueled the irrational demand on both sides of the lending markets.  People bought houses they couldn’t afford, took out home equity loans on equity that never really existed, and lenders shoved money into the hands of people who couldn’t even establish that they had an income (remember No Income Verification-No Down loans?). S&P and other rating agencies may have erred in rating these bonds as highly as they did, but the Congressional intervention behind the GSE-issued MBSs left everyone with the very distinct impression that the government would stand behind these bonds.  And guess what?  They were correct.  In the end, Congress bailed out Fannie and Freddie.

This lawsuit is just an attempt to shift blame away from the real culprits: Congresses from 1998-2008.  Why? Because if Washington DC can blame the ratings agencies instead of the bond issuers and their enablers inside the Beltway, then they can circle back around again and start distorting the lending markets for their social engineering.  Plus, it’s not a bad revenge for that credit downgrade in August 2011, either.

Ed is 100% correct. S&P was certainly a culprit in the 2008 crash, but they were hardly the only ones erring in their analyses. Second, unless I’ve missed something in the last few years, there is no evidence S&P did anything illegal or with untoward intentions. If DOJ is saying they were negligent, they’d probably have a stronger case. But in accusing S&P of intentionally misleading with its ratings, the lawsuit looks an awful lot like revenge and scapegoating than actual post-crash recompense and protection for the American people.