Financial Sector: GE Debt Downgrade...Ahead Of The G20...Executive Complicity In The Crisis
Standard & Poor’s downgraded General Electric and its finance unit one level to AA+ with a stable outlook. GE
had maintained its AAA rating since 1956. A fall below AA- would have forced the firm to post additional
collateral. GE said in a statement it “does not anticipate any significant operational or funding impacts.”
S&P analyst Robert Schulz said that the ratings committee balanced the “excellent risk profile” of GE’s
industrial businesses against the prospects of weaker earnings or a “modest net loss” at GE Capital.
“We’re not expecting any real earnings or cash flow from GE Capital this year or next year,” Schulz said.
The affirmation of a stable outlook helped GE's shares rise and $2.5 billion of 4.8% notes due in 2013 to
gain 1.7 cents to 87.2 cents on the dollar.
Ahead of the G20 meeting of finance ministers scheduled for this weekend, the Obama administration is putting more pressure on other economies to respond aggressively to the global recession, and its backing its words with a bigger commitment to the International Monetary Fund (IMF).
There is a broad-based recognition that our fortunes are closely linked to the fortunes of the rest of the
world, Treasury secretary Geithner said. And if we don't get the world moving with us, then we face some
prospect of a deeper, longer lasting recession in the United States.
U.S. officials are proposing an increase in one of the IMF's emergency credit lines to struggling nations to
$500 billion from $50 billion, which could increase the U.S. commitment to $100 billion from $10 billion. The
proposal also seeks more funding commitments from China and other developing nations.
In a briefing ahead of the meeting, Mr. Geithner said U.S. officials will also push for efforts to redraw oversight of financial markets, echoing calls from European officials that large, multinational financial companies must be subject to much stricter supervision.
Those proposals include:
1. Guidelines and principles for compensation practices.
2. Special attention paid to firms that pose potential systemic risks to the stability of the financial system.
3. Fundamental reforms to the way banks are required to hold capital.
4. Improved reforms to consumer protection and market integrity.
5. One entity to fill the role of a U.S. regulator to monitor systemic risk likely to be the Federal Reserve.
Writing for the New York Times William D. Cohan looks at complicity of top executives in the financial crisis.
“So enough already with the charade of Wall Street executives pretending not to know what really happened and why. They know precisely why their banks either crashed or are alive only thanks to taxpayer-provided life support. And at least one of them — John Mack, the chief executive of Morgan Stanley — seems willing to admit it.
He appears to have undergone a religious conversion of sorts after his firm’s near-death experience… But there can be no restoration of confidence in the banking system — and therefore no hope for an economic recovery — until Wall Street comes clean. If the executives responsible for what happened won’t step forward on their own, perhaps a subpoena-wielding panel along the lines of the 9/11 commission can be created to administer a little truth serum.”