What's Important in the Financial World (3/20/2102) GE Rating Warning, Goldman Layoffs

The credit part of the recession is not over — for General Electric (NYSE: GE) at least. Moody’s says it may downgrade its rating of the conglomerate and part of its financial services operations — General Electric Capital Corporation — from Aa2. The capital markets are not strong enough, Moody’s reasons, to avoid the risk of events that might severely damage the GE financial division’s balance sheets. Moody’s said in its note about the matter that:

The review is based on Moody’s view that the risk profile of market-funded financial institutions, including GECC, is higher than previously reflected in their ratings. With a large and recurring need for wholesale funding to support its operations, GECC is inherently vulnerable to fluctuations in investor confidence relating to the firm’s creditworthiness and to funding conditions in the market generally.

Geithner on Austerity

Treasury Secretary Tim Geithner will warn that austerity measures taken by, or perhaps forced on, many European nations could undermine any recovery there. In comments to the House Financial Services Committee, he will say, “If every time economic growth disappoints, governments are forced to cut spending or raise taxes immediately to make up for the impact of weaker growth on deficits, this would risk a self-reinforcing negative spiral of growth-killing austerity.” He made related remarks about the U.S. economy last week, comments that probably were aimed at a Congress anxious to bring down the federal budget deficit at the expense of jobs and infrastructure expansion programs. Geithner has made comments to EU leaders before, usually aimed at advising them about what is best for their economic futures. He always has been told he should take care of U.S. problems before he lectures them about theirs’.

Goldman Layoffs

The fallout of a weak year among Wall St. firms is not over. Many suffered because the government forced them out of highly profitable proprietary trading operations. Others watched lucrative investment banking sales drop. Whatever the reason, news reports indicate that Goldman Sachs (NYSE: GS) will cut workers as part of its annual review. The actions are a bad omen for many other investment banks. Goldman is considered the best-run among these, despite the public’s negative perception of the company. If Goldman needs to prune, many of its peers will have to as well.

Gas Prices Up Again

Another day, another increase in gasoline prices. By most counts, this is the eleventh consecutive day in row. The average price of a gallon of regular nationwide rose to $3.846 from $3.842 the day before. That may not seem like much, but it is when the uptick is higher each day. One month ago, gas prices were $3.556. The new number is a bit misleading. The price of gas is well over $4 in some of the most populous states, including California and New York.

Douglas A. McIntyre