The $3.7 Trillion Corporate Debt Question | WSJ
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- Опубликовано: 12 сен 2024
- About half of all issued corporate bond debt is rated triple-B, the lowest score for investment-grade debt. Analysts say all this debt could be a mess in the making, especially if the economy enters a recession. WSJ's Gunjan Banerji explains.
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Didn't Moody's rate mortgage back securities that helped leas to the '08 crisis?
Yep, and a statistician on their staff even brought up that their models were flawed. They ignored it.
But of course they did, don't you know this is a fun game?
It wouldn't be better that it wasn't Moodys. The system is inherently corrupt. If Moodys won't give you a high rating you go to another agency. The problem is that the debt holders are the ones who pay them to give the ratings in the first place.
here we go again *insert dejavu meme
Jaime Yes! They can’t be trusted either. It’s time for another “reset” and I believe it’s coming next year. The rich will be jumping off their terraces again... ☕️
Basically in practical terms:
AAA = A
AA = B
A = C
and everything else is just garbage over leveraged companies.
No its not -_- depends on the terms... in other term there is A+ learn some basic fund management kid
@@vinabaska620 ok boomer lol
@@andrewfreeman88 no problem kid
@@vinabaska620F off old man
In the last recession, companies cut payrolls at a rate I had not seen in my lifetime. I fear the continued debt burden, will cause a repeat in the next correction. Also, the ratings agencies were too cozy with investment clients to give unbiased ratings.
@Mplay1983 Its not the investors that influence rating agencies but the companies that are being rated so they can continue to issue bonds at lower coupon rates, and be certain that their bonds will be attractive, considered investment grade and low risk so they can raise capital. The investors are the ones that lose if it turns out they took on more risk than they thought or bought a bond that wasn't rated correctly so its yield was lower than it should have been. I think one of the problems is that rating companies compete to be commissioned to rate a company/ a bond they are going to issue so the giving bad ratings mean that the company will go to a competitor.
@dolofonos I would hate to call for govt. regulations of the ratings agencies, but there has to be more transparency on the possible moral hazards of both rating and being paid commission from the company you're rating. Like most investors, I try to do some level of research, but where is the honest broker? As a ratings agency or analyst, I should have to disclose the nature of my relationship with a company I might be recommending. Perhaps the WSJ could look into this. Again, let the markets be as free as possible, but if there is a role for government, it is in making sure the rules of the game are not rigged in favor of the buyer or the seller.
Exactly man. Support Virginia and the 2nd amendment
Same Shirt Different Day what does this have to do with guns
I feel like I’m watching The Big Short 2..
How do we short this debt, and where can I find Brad Pitt character to put the bet on?
"if the big short was so good why isint there a big short 2"
-Jerome Powell
So, what are they shorting this time?
Andrés Feliciano Exactly.
Nope. Because there isn't the "irrational exuberance" yet. Just like market crashes, "the big short" isn't evident until after it has happened. By its nature its catches the market by suprise. Its a shock. How do you short a market that has been artificially propped up by global central banks for a decade? Answer that and you have your mark.
If my company has so much debt, I wouldn't be wasting coffee like that
Watching this during corona is scary
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You are the best sir!
Nobody wants to raise a child in a terrible financial situation or being dependable to someone else.
Knew this early in my career it has to be worked out correctly for me. Not everyone gets the opportunity but if you have an aspiration to succeed
You should be investing in your future. I’m glad with the positivity surrounding my family. If you do want a chance.
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Another important fact to mention: if a company doesn’t like the rating that one of the ratings agencies gives it, they can visit the other ratings agencies and pick the highest one they receive. So that means that a lot of that BBB debt is probably even lower quality than it appears
Someone somewhere is gonna make a lot of money off this.
These rating companies run a racket so that companies can do whT ever they want as long as they send these rating companies checks.
source? Typical comment comes from a senior high school kid
@@vinabaska620 I dropped out started a company with my dad had a very good rating on moody's in 2008 that we should not have had. These. Companies do not care other than when they are pressured by govt or financial big banks. The o ly care about profit first. The have no ethics. They have zero oversight by anybody.
They probably chose the glue firm just for that last pun 😂
Problem is they may come unstuck
that shot was *VERY WRONG*
Moody's Haha please they had a good Rating on Bearn Stearns until the end.
How did Rome fall.
Understanding the con
ruclips.net/video/6Af6b_wyiwI/видео.html
@@MrDan11422 I saw that but thanks for sharing
A2 when bear sterns was rescued!
The names of these rating agencies are by themselves a slight against the unconscious horde of retail investors. They are being called Moody, Standard and Poor.
Doesn't at&t have around $150b in debt? How does this fall in line?
Well it’s not the amount of debt, per se. what’s their income?
Did everyone already forget these were the same rating agencies doing subprime rating.....like the spokesman said the ratings speak for themselves......now I just need them to rate my newco that will be mining resource in Mars in 24 months 😏😉
We heard this song in 2008 - Here we go Again 2020
"No, I don't know where I'm goin'
But I sure know where I've been...."
In other words, I need to skip the bond rating agencies and do my own homework.
Hello Mr dear brother, how are you doing today?
If interest rates weren’t so low, we wouldn’t be having this problem.
Teringventje Sure, just not one that benefits the public
it does seem like the Fed is pretty bad at timing their interest rate changes
@Lemmiwinks People just dont get how low rates create a fake economy that transfers wealth from the middle class to the rich. They will soon find out.
Teringventje artificially low interest rates distort markers and create poor incentives. Low rates lead to short term growth, but that growth can often be a bubble in disguise.
Teringventje The posters below me made several interesting points. There are many, many very impactful reasons to responsibly control interest rates.
Actually, let’s start by reviewing the root purpose of a central bank. Central Banks were created behind the idea that capitalist societies have boom bust cycles by nature. They (CB) are meant to soften the impacts of these extremes.
This is done by accumulating assets during boom times in the form of higher interest rates. Main reasons for this is to have a windfall reserve of currency to help quickly stimulate economic activity. This stimulus, in conjunction with a coinciding lowering of interest rates, is meant to counter economic downturns (slowing them, lessening the severity of impact, shortening the amount of time before recovery, leaving plenty of options for easy capitol to flow back into the economy without running major deficits or turning to the destructive (long-term catastrophe of abused) large scale “printing”/creation of money (Quantitative Easement), using FED monies to artificially prop up the markets, buybacks, acquisition of more government debt in form of bonds etc, bailouts of reckless or unsustainable companies (banks in particular, which directly or indirectly cause much of our economic woes. They also receive the most benefit from low interest rates, and use predatory / strong arm methods that ultimately result in even more wealth transfer to the top 1%. This causes great long-term harm to our economic system, along with lowering the standard of living and potential for opportunity (the very thing that drives our economy) for years to come).
This is but one of many issues with having artificially low interest rates in perpetuity. We are reaching a point in which we have little options left on the table when things head south.
Europe has already began implementing negative interest rates. That is the beginning of the end of the West as we know it, and the likely future will likely be dire at best.
I expect a deflationary period coupled with a relatively severe stagnation (known as stagflation; see Japan in the late 1980’s-1990’s), followed by hyperinflation that ultimately results in a catastrophe that is unimaginable in scope. It will be a worldwide cataclysm of sorts that will permanently change the current geopolitical landscape, and in all likelihood be the catalyst of widespread armed conflicts (both domestically, regionally, and internationally; large-scale conflicts between great powers are going to become dangerously likely as desperate (powerful) nations spiral into chaos and near-certain collapse, leaving few choices (none of which would be simple or easy, with all carrying great risk and high losses of life/resources etc). incentives become higher as other nations weaken.
How are you so messy with coffee? How am I supposed to trust someone that messy with such projections?
Hephaestus they must be school teachers
Funny. Probably because they need the coffee for analyzing debt
Because nothing bad has ever happened when rating agencies were blindly trusted, right?
Business Casual hey I know you
Love your vids
I told my mate my debt is AAA, but I lied. truth is I just put D's with AAA.
Why does it matter. They companies will just their buddies in the house, senate, or White House to bail them out.
Rating agencies would never misrepresent the quality of investment grade bonds. They never have, definitely not in the last 15 years, 2004 to 2007 in particular, done such an egregious thing.
The difference between corporate rating and individual rating is that when you as a person go get a credit inquiry, it's mandated & you don't get to pay off 1 specific company to get a extra 100 points. Corporate can shop around till they get the result they want. lol
Well, well, well... look where we are now!
Expect companies file for bankrupcy left and rigth next few months
In other words, we're screwed.
Again.
tonymagona334
This time is different
Different in a much worse sense
sounds like subprime mortgage again
thats because it is, but shhhh just enjoy the moment
Well money is loaned into existence. Let’s start with the main problem
Federal Reserve should be dismantled
Thanks,, the best video that Ive seen that explain rating easily
What’s with all the spilled coffee
So this is why all the Elmer's Glue ads on RUclips lately. I get it now.
coming in try to learn something about corporate debt, leaving with the admiration for Gunjan's beauty....
Why BBB is lowest cut off for "investment grade" and not BB or B? (1:21) Is there and important methodological leap?
Absolutely creative and beautiful not to mention educational it's not every day we get a taste of something different that really gives us a new insight into stuff we don't have time for which is awesome 👍♥️♥️♥️👍👍
next is BBB - - , gotta keep that hopium supply strong
I'm confused the issue is over corporate debt?
I think the real question should be is how are they going to take care of their debt without depending upon us taxpayers? Slavery is alive and well
The problem is the corporate structure is designed so that nobody is technically at fault in the blame is spread amongst multiple people on multiple levels so no one can ever be held accountable even for purposely corrupt horrible decisions
0:38 when she barely touches you
Sounds like 2008 again
As long as its rated appropriately, and not deliberately mislabeled like sub-prime debt in the 2008 crash, it shouldn't be a problem. The biggest problem in the modern economy, thanks to economic policies which promote massive gains in wealth among the wealthy, is tons and tons of capital looking for return on investment. That's why corporate debt is exploding, it's why housing prices climb steadily in spite of stagnant wage growth for the past 50 years, it's why the housing bubble was created to begin with, it's why PIGS countries were able to get all that cheap debt, it's why WeWork got billions of dollars to blow on a property management company.
And so long as we run our economy in service of equity rent-seeking, the problem will get worse and worse. We'll get a succession of bubbles, a parade of dud IPOs, and intermittent manipulation of any market where a crowd of traders can get together to make a quick buck.
Did someone pause to look at the beauty of this journalist? :)
Watching this on 14 March 2020.
It's just like the movie the big short
Meanwhile student loan debt ($1.5T) amounts to 40% of total corporate debt.
@Teringventje They vary on the type of loan. Congress sets interest loan rates.
loved how you explained leverage and investment grade debt. I'd like to see a follow up of why entering junk status would impact the company and any potential fallout to the economy as a whole if a large number of companies hit junk grade status.
Low interest rates sounds like sabotaging the economy
glue close up had me acting up
I know I know...debt is good especially when you can pay back with infinite money printing.
I was focused until 2:23
I'm wondering if Gunjan Banerji is single.
She is single every few months, like every other modern woman. Your turn will come soon.
Sketchy ratings by ratings agencies ?!?!?! Omg no way ! I can not think of one time in history that has happened
Corporate debt tripled ever since 2008. Government debt rose to an all time high. Now student loans and auto loans are defaulting in record numbers. Despite Moody’s or Standard and Poor’s rating system. Any private firm with low debt to earnings ratio would be a likely investment along with other factors. If corporate leverage levels are a whopping 3.0 times the annual gross earnings then they owe 3 dollars for every dollar earned. To put this in greater perspective that’s equivalent to a sovereign nation that has a debt to GDP ratio of 300! Not to mention that overall corporate debt worldwide is at its worst ever since it was recorded!
Gunjan your voice though!
Who will watch the watchmen. These rating agencies have lost credibility and need to be regulated
This is all directly related to the federal reserve setting interest rates. Interest rates must rise when debt rises, yet the federal reverse does not allow this to happen because then the stock market might go down or there could be a mild recession. But that mild recession is part of the normal business cycle. By trying to prevent a mild recession with arbitrarily low interest rates, the federal reserve has guaranteed a disaster.
Great video, great content, please fix mic/recording. Constantly changing volumes, clarity and has an echo.
Wondering when the ratings agencies will dare to accurately rate the United States.
"Uh-oh, spaghetti-O. " - John Maynard Keynes, The General Theory of Employment, Interest and Money (1936).
Great explanation
Nobody:
RUclips: Demonetized! 0:40
2:22 -> 0:40
Nobody needs Glue after 6th Grade. I believe Elementary School Teachers are heavily invested in Elmers.
Works good for trim carpentry and cabinet making.😉
3x debt to earnings? Wow how do companies ever pay off that debt?
The economy is heading that way, the malls are dead!
...malls are dead because online shopping is on the rise. Amazon and online retailers have become a significant force the past couple of years.
This season is breaking all kinds of consumer records. But sure, lets go with eyeballing malls.
Robert B let the idiots spend their money. A recession is coming, foreclosures all over my neighborhood. Something tells me that it’s going to be worst than 2008 Use to lines out the clothing stores and Black Friday use bring the crowds..not anymore
You can judge an economy better by looking at the airports and they are swamped. There is no online option. Your neighborhood is not reflective of the nation. I haven’t seen a single foreclosure in my neighborhood.
Joe Mac come to Torrance CA
Whatever Moody’s or S&P says I know the opposite is true.
0:37 when I haven't seen my girlfriend in a while.
0:36 Me after November
Oh no those poor investors! What ever will they do? I’m worried about the execs well being too.
PearlPerlita Venegas they’re talking about corporate debt. You’re the one that will suffer and not them. That’s my point.
@PearlPerlita Venegas If your an investor and you try to make a quick buck without doing your research, you do deserve to suffer.
A lot of these bonds are behind average peoples’ 401ks and retirement funds, if they go down you’ll suffer too
Sharon Lin read my responses. We suffer no matter what. That’s my point.
Uh okay, confusing credit score with risk right away. That’s not how credit scores work. Why do you think your score goes DOWN when you pay off a loan?
Down size their management salary and bonus and incentives and dead weight. Improve on labor salaries. Provide also financial literacy within companies to employees that are lacking the information. You would see a tremendous change in your company debt and earning ratio.
How were the statistics on debts from the 1940-1990’s? From 1940-1978 the whole Debts of the Economy was hold by companies while the state had only debts from pre 1930 and paid back its Keynesian Deficit Spending from the 1940’s to kick start the economy.
We had the highest productivity growth and investment growth in these 30-40 years
Even if you stick with S&P ratings, you at least should mention Moody's and Fitch as alternative systems, so listeners at least are aware they exist.
Wall Street needs to get its act together. If I had it my way, a corporation that lost a bet should become defunct.
Debt shouldn't be compared to net earnings but to assets, interest expense should be compared to operating profit not net profit.
Bank of America, UBS, Wells Fargo, and JP Morgan Chase all are BBB- (near JUNK, if not JUNK already) since a year ago... just an FYI...
It needs to happen
attractive and beautiful voice.
Corporations do not care about debt. If things go south, a bailout will come or company defaults and either way, executives leave with huge compensations while the workers are laid off...as usual.
Gen X and Millennials are not lazy, they just recognize the system is all one big ruse.
Lets cell APPLE , GOOGLE AND MICROSOFT'S DEPT IS PAID
I remember how bad of an adhesive that glue was in school...
I'm looking at Microsoft as an example of a quality business with next to no debt. Gates designed it well. I appreciated the thinking he shared on Ellen, when he said that he always worked to have 1 year of payroll, for all team members, saved in the bank. That is excellent long-term thinking, and should be the way more businesses operate: keep your debt to earnings ratio as low as possible. MSFT has 10% D2E. Good ratio.
Where can I find out a company's debt to earnings ratio? I can't seem to find it anywhere on the statistics page for a corporation.
I think I've seen it listed on investing sites like money.msn.com in the past. You probably won't find it for a private corporation, only publicly traded ones.
2007 all over again. "If we don't give them the ratings, they will just go to the next just across the street and get it"
Why do only a through d if you’re going to break it down even further?
Its not a question, its only a matter of time.
i hope someone cud answer my question,,, does company dept causes their products to increase in price???
This is happening when is no reference point for value of money . now money are paper and you can print a lot of it whit no repercussions, but it to late to comeback to gold reference, it’s not enough gold for all of the money printed
thanks 🙂
What is the play; best corporate bond short?
Well-Made
Duh simply print more money. Drop the cash in banks off shore. Then the collectors withdrawal it and bye bye goes the debt. SMH
American companies getting favourable ratings? This is unprecedented! /s
In 2007, some banks had tripple A ratings...
If companies can't work within their profits then I guess they'll just have to go away grow slowly and work in what you can afford it's that simple
How trust worthy are these ratings post 2008 crisis?
Companies that are leveraged to the max will default in the future.This does not include the 45 trillion of CDS notes that us banks are holding. It will be a financial disaster of epic proportions.
Anybody saving up for 'Healthy Choice' soup?
Ive heard that if there is a major economic crisis and those BBB bonds get downrated to junk bonds a bunch of companies that issued those BBB bonds will go bust. Because they will pass over into the junk bond territory. And these BBB bonds are a 3.7 Trillion dollar market while the junk bond market is only 1 trillion -1.5. This means they won't be buyers for all these potentially newly rated junk bonds and these companies who issued these bonds because they need cash will not get what they need and go under.
You mean to tell me that having low to negative interest rates world wide has lead to debt mismanagement? A decade of artificially low interest rates were never a good thing, & only kicked the can down the road after the last recession.
The problem has only gotten bigger, red flags are starting to come up everywhere(savers are forced to play riskier positions in inflated markets & assets due to the low interest enviornment). This next one will be worse. Theres no doubt about it.
Thanks FED
just remember that all the debts that crushed economy in 08 were rated as A and above
I was waiting to hear about tranches and CDOs.