Article summary and synthesis

¶ … Party is Over" explicates the rapid and unprecedented growth of the American economy over the last five decades, how this relates to equity and debt, and also the new trend of an apparent downturn in the economy. The article further explains the reasoning behind companies' choice to finance themselves via debt rather than equity. Dividends are taxed, while debt repayments are not, and therefore these are, in theory, cheaper than equity. Concomitantly, credit providers have increased, also increasing competition, and thus all companies had more access to credit than every before, further placing companies in a position of advantage in terms of debt. This however also relates closely to the bond markets, which respond to the limits imposed by credit provisions. Further influencing factors include rapidly changing technology, which has been destructive to creditworthiness - bondholders are less certain if companies will survive such changes to pay back their loans. Another result is also that an increasing amount of companies are buying back their own shares, resulting in less available credit, with the end result that fewer companies borrow, and the stock market plummets.

The article "Debt is Good for you" begins by considering the application of Modigliani and Miller's theory that companies would most benefit from funding their operations entirely by debt because of the above-mentioned tax issue. While an increasing number of companies have increased their debt over the last decades, fewer are doing so than might be expected. The article suggests a variety of reasons for this. While a solid credit rating is beneficial in the long-term, the mix of debt and equity becomes unsustainable if bondholders no longer perceive the debt levels of the company as benefiting them. Furthermore, the articles suggests a number of theories to further explain the lack of debt levels as opposed to those suggested by Modigliani and Miller's theory. The first is the trade-off theory, which holds that a company's tendency to incur debt depends upon the stability of its business. Greater stability would mean a greater tendency to incur debt.

Turmoil in the markets" is an article that concerns the plunging stock market prices in the United States. The reason for this is explicated as rising borrowing costs rather than disappointing profits - which are nonetheless also a reality. At the bottom of rising interest rates is investor concern about rising delinquencies in subprime mortgages. Indeed, the housing market has unfavorably affected the debt market as well, also affecting companies in the debt market unfavorably. Bank and broker shares are among the worst hit, and had to absorb unwanted loans. This is easier for larger corporations than smaller ones. The economy is therefore significantly affected by the housing market, which affects not only home loans, but other debts as well.