{"id":41210,"date":"2018-12-03T08:18:12","date_gmt":"2018-12-03T13:18:12","guid":{"rendered":"https:\/\/olduvai.ca\/?p=41210"},"modified":"2018-12-03T08:18:12","modified_gmt":"2018-12-03T13:18:12","slug":"could-ges-slow-collapse-ignite-a-financial-crisis","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=41210","title":{"rendered":"Could GE\u2019s Slow Collapse Ignite A Financial Crisis?"},"content":{"rendered":"
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Could GE\u2019s Slow Collapse Ignite A Financial Crisis?<\/a><\/h3>\n<\/header>\n
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Will GE be the proverbial \u201cblack swan?\u201d \u2013 It had come to my attention that General Electric was locked out of the commercial paper market three weeks ago after Moody\u2019s downgraded GE\u2019s short term credit rating to a ratings level (P-2) that prevents prime money market funds from investing in commercial paper. Commercial paper (CP) is an important source of short term, low-cost, liquid funding for large companies. At one point, GE was one of the largest users of CP funding. As recently as Q2 this year, 14.3% of GE\u2019s debt consisted of CP. Now GE will have to resort to using its bank revolving credit to fund its short term liquidity needs, which is considerably more expensive than using CP.<\/p>\n

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Moody\u2019s rationale for the downgrade was that, \u201cthe adverse impact on GE\u2019s cash flows from the deteriorating performance of the Power business will be considerable and could last some time.\u201d Keep in mind that the ratings agencies, especially Moody\u2019s, are typically reluctant to downgrade highly regarded companies and almost always understate or underestimate the severity of problems faced by a company whose fundamentals are rapidly deteriorating.<\/p>\n

As an example, Moody\u2019s had Enron rated as investment grade until just a few days before Enron filed bankruptcy. At the beginning of November 2001, Moody\u2019s had Enron rated at Baa1. This is three notices above a non-investment grade rating (Ba1 for Moody\u2019s and BB+ for S&P). Currently Moody\u2019s and S&P have GE\u2019s long term debt rated Baa1\/BBB+. In the bond market, however, GE bonds are trading almost at junk bond yields.<\/p>\n

\u2026click on the above link to read the rest of the article\u2026<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Could GE\u2019s Slow Collapse Ignite A Financial Crisis? Will GE be the proverbial \u201cblack swan?\u201d \u2013 It had come to my attention that General Electric was locked out of the commercial paper market three weeks ago after Moody\u2019s downgraded GE\u2019s short term credit rating to a ratings level (P-2) that prevents prime money market funds […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[3392,1849,5022,6895,1297,503,6585,23321],"class_list":["post-41210","post","type-post","status-publish","format-standard","hentry","category-economics","tag-credit-crisis","tag-financial-markets","tag-general-electric","tag-investment-research-dynamics","tag-junk-bonds","tag-market-manipulation","tag-stock-bubble","tag-u-s-economycommercial-paper"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/41210","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=41210"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/41210\/revisions"}],"predecessor-version":[{"id":41211,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/41210\/revisions\/41211"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=41210"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=41210"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=41210"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}