Senator Bernie Sanders has done so much to protect the American people the Shock Exchange has nearly lost count. It was Bernie’s 2015 HCV rant against Gilead’s high HCV prices that kicked off the drug price debate between Hillary Clinton and Donald Trump during the presidential campaign. Bernie was also vocal about Wall Street greed and wrongdoing by rating agencies to protect Wall Street leading up to the Financial Crisis:
Sen. Bernie Sanders is lambasting credit rating agencies for, in his view, giving AAA ratings that were “bogus.” But for the rating, he claims investors would not have purchased subprime mortgage assets. And the reason for these “bogus” ratings? Wall Street greed.
His solution is unsurprisingly to take the “profit” out of ratings. But that would result in ratings far worse than anything we’ve seen …
While it was certainly not apparent at the time of the crisis, the overwhelming majority of subprime MBS performed as rated. Sen. Sander’s assertion that the rating agencies knew their ratings were “bogus” is simply inconsistent with the performance of the rated assets.
Sanders was spot on. In fact, many of the analysts at rating agencies wanted to get higher-paying jobs at Wall Street firms. One way to access those jobs was to give potential employers favorable credit ratings for their securities.
Rating Agencies Are Now Protecting General Electric
Now the rating agencies are protecting General Electric (GE). Under former CEO Jeffrey Immelt the company spent tens of billions on share repurchases when the economy was much stronger. New CEO Larry Culp wants to hive off assets to pare its $115 billion debt load to protect its credit rating. The problem is that GE’s core operations are in disarray. Its Power business was supposed to be a key catalyst, but it is currently being disrupted by renewable energy.
The company doubled down in the Power sector with its $14 billion acquisition of Alstom’s Power business a few years ago. The deal was ill-timed and a complete disaster. It led to more debt and more earnings erosion. GE is now cash flow challenged and its debt is trading at junk levels.
— Yahoo Finance (@YahooFinance) November 15, 2018
The market believes GE’s debt is junk. The question remains, “Why haven’t the rating agencies sacked GE further?”