08/09/2011 08:45 am ET | Updated Oct 09, 2011

S&P Not Shy About Using Its Clout Politically

In April 2002, Georgia Gov. Roy Barnes won legislative approval for a law to hold Wall Street accountable for bankrolling predatory lending. After the Democrat lost reelection that fall to Republican Sonny Perdue, the finance industry launched an all-out assault on the provisions of the law that held mortgage investors liable if they bought fraud-tainted home loans.

One of the defining moments in the legislative fight came when Standard & Poor's, the giant debt rating company, announced it would no longer rate securities that might be backed by loans covered by the Georgia law, raising the specter that investors would cut off the flow of money into the state's mortgage market and cripple its ability to provide credit to homeowners.

As the financial markets roil, one of the critical factors weighing down the U.S. economy is the flood of home foreclosures. Thursday's crash underscores how difficult it will be for the economy to make significant strides while the housing market is still in tatters.