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STB sets 2013 railroad cost of capital
And the grain and corn shippers, who are getting the best and lowest cost service in railroad history, want to hobble the rails with their “equal access” plan. How absolutely dumb!
I wonder why the railroad cost of capital is so much more than the 5 % interest rate for mortgages potential homeowners with very little in assets ?
If this was the pre Staggers Act era and Penn Central was the railroad in question, then yes, investing in railroads would be risky. But now? Even during the Great Recession the rails performed very well. I would be overjoyed to lend to them at 5%, which is 5% more than banks will pay me.
Hi Anthony, The short answer to your question is because there is more risk in an ongoing commercial enterprise than in a house. Among other factors, a mortgage is secured by the house, and even then, the Loan-to-Value is only 80% of the value of the house. Mortgage lenders also require repayments be some smallish fraction of the borrower’s income (like 35%). Despite what happened in the housing crisis, mortgages are pretty low risk.
Mr. Marsh:
Thank you for your answer.
Mr. Hallock:
Interest from my bank is low too. I suppose paying us 1% after lending at 11% means you & I should invest in banks. 