Why AAA Ratings are Rare

From the NYT, “AAA Rating Is a Rarity in Business”:

In the early 1980s, around 60 companies had AAA credit. By 2000, the number of AAA companies was about 15. Today just four corporations— Automatic Data Processing, Exxon Mobil, Johnson & Johnson and Microsoft — can claim those once-coveted three initials. (Five big insurers and several government affiliated organizations can too.)

But in the case of the federal government, the stakes are different:

For most Americans, the prospect that the government could lose its AAA credit rating is almost unthinkable — a blow to national pride and consumer confidence that could turn out to be more damaging than any increase in borrowing costs.

The potential cost:

A downgrade of a country rating can ripple through other entities that rely on the government for support, potentially raising borrowing costs across the economy. These include mortgage bonds issued by Fannie Mae and Freddie Mac, as well as debt sold by dozens of states and counties whose local economies have strong ties to Washington. It also could affect about a dozen insurance companies and too-big-to-fail banks, whose ratings benefit from the perception that the government would bail them out if they ran into trouble again.

But it’s all about perceptions:

The ratings agencies may say so one day, but lawmakers and citizens might have a reaction like that of Warren E. Buffett, after his Berkshire Hathaway lost its prized AAA status in 2009.

“We’re still AAA in my mind,” he said.