[OPE-L] fictitious capital and junk bonds?

From: Gerald_A_Levy@MSN.COM
Date: Fri May 06 2005 - 07:17:53 EDT

Hi Alejandro:

What is the significance of this story?  What is the relation between
fictitious capital and junk bonds?   What role does S&P (and
similar organizations) play in determining which is what?  Which bonds
can be expected to be downgraded to junk next?

Isn't the change in credit rating to junk for GM and Ford largely
about the trade imbalance?  E.g. at the same time that Ford and
GM sales plummeted in the US , Toyota had a huge increase
in sales in the US.   Another issue is how the composition of
demand for cars has changed as a result of increasing oil and
gas prices and how this especially has hurt the sales of SUVs --
which were big money-makes for both Ford and GM.

Another issue: the reference to "enormous health care and post-
retirement liabilities" suggests to me that the way in which GM and
Ford will seek to recover is by demanding greater 'concessions' from
the UAW.  Will the Union, though,  finance the recovery of these
corporations or will the ranks (especially retired members on
pension) put enough pressure on the Union and the corps. to prevent

In solidarity, Jerry

> S&P Cuts GM, Ford Credit Ratings to 'Junk'
> Thursday May 5, 2:13 pm ET
> By John Porretto, AP Auto Writer
> Standard & Poor's Ratings Services Cuts GM, Ford Corporate Credit
> Ratings to Junk Status
> DETROIT (AP) -- Standard & Poor's Ratings Services cut its corporate
> credit ratings to junk status for both General Motors Corp. and Ford
> Motor Co., a significant blow that will increase borrowing costs and
> limit fund-raising options for the nation's two biggest automakers.
> Shares of both companies fell 5 percent or more after the Thursday's
> downgrades, and the news sent the overall market lower.
> The decision by one of the nation's most respected ratings agencies
> comes as the two iconic American automakers are losing market share at
> home to Asian automakers, seeing sales soften for their most profitable
> models and are facing enormous health care and post-retirement
<snip, JL>

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