Democrats Look to Extend Federal Support to Muni-Bond Market | |
Irdooomed
User ID: 678196 Australia 05/13/2009 09:02 AM Report Abusive Post Report Copyright Violation | |
Anonymous Coward User ID: 678182 United States 05/13/2009 09:03 AM Report Abusive Post Report Copyright Violation | |
Phennommennonn
(OP) Forum Administrator User ID: 581503 United States 05/13/2009 09:04 AM Report Abusive Post Report Copyright Violation | Joe Weisenthal|May. 12, 2009, 4:01 PM|24 One of the most insane ideas we've heard of may soon become reality. Fox Biz is reporting that the House Financial Services Committee is set to take up legislation this week that would establish a federal backstop for all Municipal bonds and muni insurance. This would, of course, represent another massive expansion of the government's guarantees and turn all states into Fannie and Freddy. Here are the details, again per Fox Business: Create a liquidity facility through the Federal Reserve to purchase municipal bonds, much like what the Federal Reserve does with mortgage-backed and federal government bonds. Form a temporary federal government program to reinsure municipal bond insurers. Almost all municipalities buy bond insurance because it boosts their credit ratings. The cost of the insurance is usually lower than the higher interest payments that come with a lower credit rating. If the insurer runs into financial trouble, then the credit ratings on the municipal bonds drop because there is doubt about the insurance. Government backing would eliminate that concern. Provide additional regulation for financial advisors to municipalities. Many, including former Securities and Exchange Commission Chairman Arthur Levitt, have been calling for stronger oversight of the municipal bond market in the wake of pay-to-play bond scandals, in which banks and advisers have made gifts or political contributions, and received financing jobs along with the fees for those jobs. Representative Frank has in the past criticizes muni bond raters for downgrading muni debt during a time of recession, not because such downgrades aren't warranted, but because a higher cost of capital is counter-stimulative. Of course, California is on the verge of bankruptcy, and investors should be extremely cautious lending to the state. We almost wonder whether the entire purpose of this program is to bail out California, which, if it went bankrupt, could cause a cascade of problems, as the debt market shuts off completely for other states, while muni insurers -- who have modeled extremely low default rates -- potentially go belly up. Politically, it's probably easier to just backstop the whole damn market than to target aid at the worst states. Of course, all these guarantees are predicated on the idea that this is a temporary blip and that revenues will return to normal as the economy grows again. We don't think it will, and we don't think there's any way California (or any other state) can return to revenues that only seemed normal during a bubble. [link to www.businessinsider.com] political correctness is a doctrine.... fostered by a delusional, illogical minority...... and rabidly promoted by an unscrupulous mainstream media; which holds forth the proposition that it is entirely possible to pick up a turd by the clean end. |
Phennommennonn
(OP) Forum Administrator User ID: 581503 United States 05/13/2009 09:05 AM Report Abusive Post Report Copyright Violation | Isn't extending federal support going to hurt confidence in the muni-bond market? Quoting: IrdooomedMaybe the American federal government would be better off just paying for the public works. check out the ticker forum on this [link to www.tickerforum.org] political correctness is a doctrine.... fostered by a delusional, illogical minority...... and rabidly promoted by an unscrupulous mainstream media; which holds forth the proposition that it is entirely possible to pick up a turd by the clean end. |
DaJavoo
User ID: 670633 United Arab Emirates 05/13/2009 09:59 AM Report Abusive Post Report Copyright Violation | About time they woke up ~ but intervention is next to impossible. Who would decide which munis are too big to fail? Sure as God made little green apples the BOND market is the next shoe to hit the deck. This 'crisis' has passed the one year mark ~ once the dominoes started falling last spring there was no way to stop. Question is, how many dominoes are left and how big the dust cloud will be when they stop falling. It will not end well. :DJrebelli: |
Phennommennonn
(OP) Forum Administrator User ID: 581503 United States 05/13/2009 04:09 PM Report Abusive Post Report Copyright Violation | About time they woke up ~ but intervention is next to impossible. Who would decide which munis are too big to fail? Quoting: DaJavooSure as God made little green apples the BOND market is the next shoe to hit the deck. This 'crisis' has passed the one year mark ~ once the dominoes started falling last spring there was no way to stop. Question is, how many dominoes are left and how big the dust cloud will be when they stop falling. It will not end well. credit cards, insurance companies....house of cards here. political correctness is a doctrine.... fostered by a delusional, illogical minority...... and rabidly promoted by an unscrupulous mainstream media; which holds forth the proposition that it is entirely possible to pick up a turd by the clean end. |