By John Rubino
Today's Wall Street Journal has a short piece by American Interest editor Walter Russell Mead on how November's election changed things for California, Illinois, and New York -- and for the national parties that have to manage those states' coming bankruptcy:
[[wysiwyg_imageupload:881:]]By Bruce Krasting
You hear a lot about the states that are facing a financial wall. California, NY and Il are on top of the list. But that is a 2010 story. The 2011 story will shift toward the nations municipalities. There are 36,000 cities, towns, villages and boroughs across the land. They all are facing problems. This chart from the CBO (pdf LINK) describes the problem:
[[wysiwyg_imageupload:874:]]By David Galland
It’s an overview of the escalating deterioration of municipal debt markets, and the concurrent increase in the likelihood that the Fed will again be called in for a bailout. There is also a link to an article on the topic from the New York Times that is worth reading.
Here’s a quote:
The problem is state debt. New York, California and Illinois look more like Greece to their bondholders every day. Since the November elections, investors have been dumping their bonds, and hedge funds are betting against them, perhaps realizing that a Republican House is not going to offer generous, condition free bailouts.
This is exactly why municpal bonds are a train wreck: municpal tax revenues are based on the value of real estate. As real estate continues to decline (specifically in private home ownership), those that still own a home will pay LESS in taxes-as they should. This in turn puts stress on municipal budgest.
Bank of America Corp.’s agreement to pay $137 million in restitution for taking part in a nationwide bid-rigging conspiracy for municipal-investment contracts may soon be followed by more settlements to repay the scheme’s victims, the Justice Department’s Antitrust Division head said.
By Fred Sheehan
Undaunted by falling municipal bond prices, rising yields, and withdrawal of funds, research reports by large brokerage firms still mollify the majority of clients and fund managers with numbers and assertions: "General obligation bonds do not default." "The general obligation default rate is 0.01%." "Most states are required by law to balance their budgets." To these and other airtight arguments in the muni marketing kit, the proper articulation of doubt may be expressed as: "Yeah, Yeah, Yeah." Or, one might read Possible Misunderstandings by Municipalities and Their Bonds."
Municipal-bond issuers, whose default rate slowed this year, may face more failures in 2011 as federal stimulus aid declines and budget pressures jeopardize debt payments, said Richard Lehmann, publisher of Distressed Debt Securities Newsletter.
By John Rubino
From Saturday's Wall Street Journal, more on the federal government's ongoing stealth bailout of US states:
Yes it is, and there is hell to pay. Wait a second. The only way these will pay is if there is a bail out of the muni bond market. :)
The muni bond market is tanking, and there is going to be a lot more blood.
