The Financial Landscape: Moody's Mulls the Debt Ceiling; Groupon's Unboring IPO
A roundup of news from around the world of finance:
Moody's Warns GOP of the Dangers of Its Debt Ceiling Game: Following its warning Thursday on the too-big-to-fail financials, Moody's (MCO) announced Friday that the U.S. runs the risk of having its debt downgraded due to the ongoing debate over whether to raise the debt ceiling before default becomes inevitable in early August. Politico reports that Republicans have seized upon Moody's call for "substantial deficit reduction" to justify their claim that the ceiling should be raised without equivalent cuts in spending, but Moody's emphasis was clearly on the necessity of avoiding even the "very small but rising risk" of "a short-lived default."
"Just spent 30min w/ Geithner and I'm disgusted and discouraged," tweeted another, identified by Politico as Tea Party freshman Rep. Joe Walsh (R-Ill). "We can't roll over & settle the way he wants us 2." However much Wall Street -- to whom even temporary default would be anathema -- seems to call the tune in Congress, this is starting to look like one of those moments when a poorly functioning legislative system sputters towards crisis.
Hiring Slowed in May: More bad economic news was announced Friday morning, as the Labor Department reported that the pace of U.S. hiring slowed in May: Only 54,000 jobs were added, down from 232,000 in April, pushing the unemployment rate up to 9.1%. Stocks are expected to slide as a consequence.
Uncle Sam Gets Out of Chrysler: In a bit of good news for the Treasury, Fiat SpA (FIATY) will buy the government's last 6% of Chrysler Group for $500 million, thereby ending Washington's involvement in the Michigan automaker. Fiat now owns a majority holding in Chrysler (52%) and expects to add more -- a 5% stake "in the fourth quarter in return for developing a fuel-efficient car for Chrysler," according to Bloomberg, and a likely purchase of the entire 45.7% stake owned by the United Auto Workers health care trust fund (for which Fiat will pay $75 million -- 80% to the U.S. Treasury and 20% to the Canadian government). President Obama, looking to capitalize on the success of his administration's auto bailout program, is "expected to announce the deal during a planned visit Friday to a Chrysler automobile assembly plant in Toledo, Ohio," reportsThe Wall Street Journal.
Groupon's Big Deal: Groupon filed for an IPO Thursday that could raise as much as $3 billion and value the leading "group deals" site at $30 billion. Predictably, questions rose over whether we're seeing a second Internet bubble.
The anonymous investment banker and blogger known as the Epicurean Dealmaker tweeted, "Ladies and gentlemen, I have two words for you: Caveat-F**king Emptor. That is all. $GRPN," ending with the ticker symbol under which the company will be listed.
"Life is too short to be a boring company," CEO Andrew D. Mason told potential shareholders in a letter that was at times defiantly weird, at other points almost preemptively apologetic: "As with any business in a 30-month-old industry, the path to success will have twists and turns, moments of brilliance and other moments of sheer stupidity. Knowing that this will at times be a bumpy ride, we thank you for considering joining us."
The world is, of course, full of those looking for a short-term profit, but long-term investors have to be wondering where exactly that bumpy ride is leading. And we all have to wonder, is this the best the U.S. economy can offer -- a trendy coupon company, running at a loss, whose greatest asset appears to be a writing style of dubious appeal?
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