The Corner

“General Electric Capital Credit-Default Swaps Soar to Record”

 From Bloomberg:

The cost to protect against a default by the AAA rated financial arm of General Electric Co. jumped to a record today.

Credit-default swaps on GE Capital Corp. climbed as much as 125 basis points to 740 basis points before dropping back to 680, according to broker Phoenix Partners Group. An increase in the contracts, used to hedge against losses or to speculate on creditworthiness, suggests a decline in investor confidence…




Those credit default swaps for GE Capital have been rising for some time–since last fall, and prior to today, they peaked around the time of the Bear Stearns collapse. Egan-Jones Ratings, a firm not tarnished by the mortgage ratings fiasco that should tarnish S&P and Moody’s, rates GE at AA- (four notches below triple A). There is no particular reason to believe GE Capital will come through this period of relaxed credit standards unscathed. Pricing of CDSs in this environment is based on fear–not rational analysis. Either, in your correspondent’s view [actually, a Bloomberg report, which I hadn’t made clear], GE Capital is AAA, or it is not–the CDSs reflect a credit rating several notches below. That makes for an interesting investment speculation, as such views in conflict cannot both be correct. At the end of the day, I still see no argument for the taxpayer to bailout lenders that made criminally stupid, if not negligent, loans–and the executives who approved them.


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