One of our favorite reads is the quarterly report of the Third Avenue Value Fund, run by famed value investor Marty Whitman. Whitman invests in the style of the late Ben Graham, Warren Buffett's mentor back in the 1950s.

While Whitman's main angle is finding good investments, he is at heart a credit analyst. He likes good balance sheets and that forms the foundation of his analysis and much of the secret of his long-term success.

In his 80s now, he's still one of the sharpest and most independent thinkers in the investment world. He thinks differently from the Wall Street crowd and his long term track record consistently outperforms the market.

So we pay attention to his views and something he wrote recently made us stand up and take notice.

Following the U.S. Federal government's budget debacle this past summer, Whitman, in his Third Quarter 2011 report to shareholders, wrote about our government's solvency and debt issues:

"The true test of solvency is the creditworthiness of the economic entity, not the amount of debt that it owes. The amount of debt is important, but it is only one element in determining creditworthiness. In fact, creditworthiness is a function of three factors:

• The amount of debt
• The terms of debt, and
• The productivity of debt"

Now, every good credit analyst knows and thinks about the first two above.

But we're not sure about the third one, productivity.

And what struck us was Whitman's assertion that the third factor - productivity or growth - is "by far the most important" of the three.

He noted that, while "it is relatively easy to measure the productivity of use of proceeds on the corporate level - profits and/or growth in net asset values - it tends to be much harder to measure productivity where the expenditures are made by a government not motivated primarily by seeking profits."

The takeaway from this is to make sure you analyze not only the amount and terms of a customer's debt, but also to think about how productive that debt is.

We're not sure it's as easy as he notes, as it's something of a subjective call. But it gives a framework for thinking about a company that is leveraged.

Productive debt finances activities are useful investments, those which enable cost-savings, innovation, productivity growth or some combination of those activities.

Unproductive debt is the kind that is needed simply to get by in a desperate situation.

Being capable of judging that is the duty of a credit analyst - and what makes her worth her weight in gold.

Whitman is by no means an apologist for corporate America. He notes in the same report:

With a long background in distress investing, it is impossible for me to hold the view that the federal government is inefficient and Corporate America is the paragon of efficiency. It seems to me, that large institutions screw up rather consistently - whether governmental or corporate. The recent experiences of U.S. corporations and financial institutions demonstrate this. See the residential mortgage debacle after 2007 and still ongoing. See the insolvencies of General Motors, Chrysler and so many auto suppliers. See the loss of the U.S. manufacturing base (shoes, TVs, autos, computer components, textiles, shipbuilding, etc.) to East Asia.

So you can see we pay attention to Mr. Whitman.