When I hear that a ratings agency has downgraded a company or companies I usually expect to hear about how they have financial problems. As far as I can tell, these companies are being downgraded even though nothing has changed.
Moody’s has cut the credit ratings of big US banks including Morgan Stanley, Goldman Sachs and JPMorgan Chase, after deciding that the federal government is less likely to bail the financial institutions out if they get into future difficulties.
Goldman, Morgan Stanley and JPMorgan had the ratings on their long-term senior unsecured debt lowered one notch to Baa1, Baa2 and A3, respectively, Moody’s said on Thursday. The credit ratings on the three banks’ subordinated debt were also cut by one notch.
The review by the second-largest rating agency, in terms of market share, follows a similar statement from rival Standard & Poor’s in June, and comes as governments attempt to avoid a repeat of the bailouts of the credit crisis era.
Wall Street reforms under the Dodd-Frank Act forbid the use of taxpayer money to save a failing bank and require the creation of a resolution authority to wind down institutions once they get into trouble, imposing losses on creditors in the process.
I find this rather amazing. Goldman Sachs, Morgan Stanley, and JPMorgan are being downgraded because they are not as likely to be bailed out by the US government. Doesn’t that imply that the only reason these companies were rated as highly was because the government was ready to shield them from failure? So the reason for owning stock in these companies, rather than in another, was not because of their investment strategies or anything else they did. It was because they were too big to fail.
People were investing in these companies because the government was there to make sure they never lost their investment.
You were basically investing in the slavery of taxpayers.