The choice to sue the ratings agencies demonstrates three very sad things about the Obama Administration, as I'm fairly certain the Justice Department would not go ahead with the lawsuit without the Administration's okay.
1) There aren't very many members of the financial system who can be sued at this point that would not just a) undo a lot of the positives Geithner and Bernanke did and b) make the Administration look bad for backing someone who they felt were unethical. So they found a scapegoat they had never been associated with (and the fact that S&P downgraded Treasury debt makes a lawsuit even more appealing to the government). The Administration needs the approval and seem to have nothing in the pipeline that will garner it. They also want to continue blaming Bush and the financial system for the slow recovery to avoid negative blowback on the stimulus, etc, in a time of deficit battles. So they lash out. Particularly galling right after HSBC gets away with money laundering for Mexican drug cartels. A piss-poor demonstration of leadership.
2) The administration really has no idea how commerce, business, finance or anything else work, or are at least willing to act in a manner that makes it seem that way. A rating is an opinion, not a certification... every financial rating everywhere includes risks that it could be catastrophically wrong. There seems to be this technocracy pervasive in government that if you want things to work a certain way, they magically do, so if the ratings agencies wanted to get the ratings right, they would have. Unfortunately, in the real world, there are risks and sometimes failures, but you sometimes need to let those go to promote a system where people are willing to put their necks on the line. For the ratings agencies to be useful, you need them to feel they can tell the truth about what they think, to the positive or the negative. Otherwise, you lose an environment of accountability and everywhere turns into the government - exhibiting a sort of CYA reactivity instead of people being willing to put their reputations on the line. It's no different to why we have reasonably lenient personal bankruptcy laws relative to other countries.
3) Ultimately, this hurts issuers of debt and small buyers and helps large buyers that can do their own analysis (who, ironically, are the people the issuances in question were sold to). If ratings agencies are legally accountable for their ratings, why on earth would they take on complex issuances? And even if they do because they want the fees, won't they artificially rate all of them lower than expected? That'll either a) devalue low ratings in the eyes of investors and make them ignore the ratings agencies, ironically leading to more risk-taking or b) scare off small investors and leave the securities for big investors who can see through the bulls*t. As a financial professional, I suppose this makes my job easier, but not for a reason that makes me particularly happy.
For that matter, how does this not hurt the Federal Government? It's not like the debt issued by the Treasury is free of future concerns, and if this move makes the ratings agencies much faster to pull the trigger on downgrading US debt, that would be called "backfiring".
I really, really try to give Obama the benefit of the doubt on things, but on the fiscal and economic front, he has made it harder and harder to do so over time.