Friday, July 23, 2010

Dodd-Frank claims its first victim

"Ford Motor Co. is an outstanding recent success story, having just announced solid earnings. They restructured wisely, shedding Jaguar and Volvo, and took no bailout money. But they ran into trouble last week when their auto financing operation tried to issue debt. The rating agencies, fearing Dodd-Frank, refused to let Ford use their AAA rating in the offering prospectus. Many prospective buyers are forbidden from buying debt without this rating. So Ford had to pull the offering.

In financial markets especially, political incentives are swamping market incentives. The voice of the consumer, as transmitted through the price system, grows fainter with each new "reform.
(Source: Wall St. Journal July 21st) "

Warren C. Gibson, 7-21-2010, communication via Barstool Economists Yahoo group.


Anonymous said...

I'm not clear on this. Was it the rating agencies who rated subpirme debt as AAA who are complaining that they can't rate Ford AAA, or is it different rating agencies? Or, did the rating agencies rate Ford lower than AAA, but, fearing Dodd-Frank, decide to eschew the routine practice of issuing an AAA rating anyway. Professsor Gibson fails to give his own credit worthiness rating of Ford, so it's hard to tell. If that part of the quote was inadvertently omitted, I apologize and eagerly await seeing it. Please fill in the blanks and clarify.



HaynesBE said...

OK. I posted this in ignorance. My bad. I can't answer any of your questions. I would delete the whole post, but then I'd also have to delete my eating crow, so I will leave it.