Saturday, May 14, 2005

"Fallen Angels" Litter Corporate America

The Wall Street Journal did a story on the disappearance of Triple 'A' rated corporations in the US. "General Motors Corp. used to be one. So did Ford Motor Co. and American International Group Inc. But over the years, the elite of American business, the triple-A-rated company, has become an endangered species."

"Only six U.S. nonfinancial companies now sport a triple-A debt rating from S&P compared with 32 in 1980. Over the same period, the tally of banks, utilities and industrial companies enjoying a Moody's top rating has fallen to six from 58."

Only in profligrate America could such a turn of events be celebrated. "Some economists say the trend also illustrates a more positive development since the early 1980s: U.S. companies' increased willingness to take chances to grow, although corporate courage has withered a bit amid scandals and a concomitant step-up in regulation."

"In the larger context of U.S. economic history, the dwindling list of triple-A's reflects a tectonic shift in priorities. 'As the U.S. lost its dominant position in the world economy, competitive pressures forced companies to assume more risk.'"

4 Comments:

At 9:23 AM, Anonymous will said...

I don't have access to the WSJ but here's a link

http://brownstoner.com/brownstoner/archives/2005/05/fannie_mae_to_b.html

"Fannie Mae to Boost 40-Year Mortgages

40-year mortgages, which currently account for less than 1% of all outstanding mortgage debt, will soon get a boost soon from Fannie Mae. The company announced last week that it plans to make the extra-long term instrument a standard product. We're not sure why there will be much demand, as a 40-year borrower only saves about $30 per month per $100,000 of balance (the 40-year tends to carry about a quarter-point rate premium over the 30-year). As far as we know, no one on his death bed has ever wished he'd taken out an extra ten years on his mortgage."

 
At 10:26 AM, Blogger goleta said...

Instead of investing in better or emerging products and technologies that can make them more competitive in the world market and reduce our trade deficit as a result, companies like GM choose to grow their riskier mortgage or other financial businesses that are mostly zero-sum games. The only result is some Americans make more money from some other Americans.

Those financial businesses do not create anything new and now GM and Ford are falling behind Japanese motor companies in hybrid and other technologies that had they invested more in those technologies, this country's trade deficit would not be this bad.

As long as the trade deficit continues, US dollar will keep losing its value, so will any US assets. Eventually the RE market will correct itself and make it back to the course of inflation..

A house is just like any other man-made products, everything breaks down over time. Unless the house has a special design and built with special and rare parts that the house can be sold like an antique, the building is losing value every year.
Only the land becomes more valuable. So it makes much more senses to invest in the land than the house.

But even the lands do not fare much better than inflation in the long run.

 
At 10:29 AM, Anonymous Anonymous said...

Didn't Willie Lowman make his last payment on a 40 year mortgage in Death Of a Salesman? I seem to remember his wife saying that it was quite an accomplishment to weather a 40 year mortgage...

(Just trying to help set the mood around here)

 
At 11:34 AM, Blogger Ben Jones said...

10:29 anon,
That's great recall!

 

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