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Bernanke/Senate to States: Buzz Off! - Or Not?
Our boy Ben B met with senate leaders last week to discuss the sorry
state of the States. It looks like all talk and no action, so far. I
wanted to write about the non-event to have a record. When Ben reverses
course later this year I will be able to point to this weekend’s
comments and say, “I told you so”.
The setting was a hearing of the powerful Senate Budget Committee. The
Chairman is Kent Conrad (D-ND). Last I heard ND has no muni problems,
but it was pretty clear that this group of Senators were well informed
on the issues that cities, towns, counties and states are facing.
Senator Conrad: (Link to Bond Buyer story)
We’re talking about a significant problem here. We need to be prepared with a plan in case we are approached by one or more states.”
A “plan? What plan? From Senator Joe Manchin (D-WV)
“20 to 30 states could be in serious problems”
Jeepers! 30 States Joe? Senator Manchin sounds like he is more bearish
than Meredith Whitney. John Cornyn (R-Tex) added to the sense of
concern. From a spokesman:
“Senator Cornyn is exploring ways to address the state financial crisis, including amendments to the bankruptcy laws”
BK? A State? What is that about? Is this the "plan"? A state bankruptcy
has not happened in more than 100 years. Chairman Conrad summed it up:
His
panel needs to come up with a plan to help states that approach Congress
seeking assistance because of serious financial troubles.
We all know that munis across the country are in the crapper. That said,
I was surprised at some of the hard language. Normally these folks
don’t talk like this. I am thinking, “What do these guys know that I don’t?” “Why is there a need to revise the bankruptcy code to facilitate Municipal default?”
The answer to those questions can be found in the words from the
committee and comments from Bernanke. D.C. Inc is not throwing any
life-lines to the sick states. Senator Conrad:
“I don’t think the House or the Senate are going to be very interested in bailouts to states.”
“Not interested in a bailout?” The understatement of the new year
(so far). But the real interesting stuff came from Bernanke. He says he
is not going to be there if the States need some of that fast cash he
is providing to the federal government with QE.
“We have no expectation of intention to get involved in state and local finance”
That’s nice to hear. But my concern is that Bernanke seems to be in
denial as to the extent of the problems with munis. In his world if the
S%P is higher then all must be well in the economy. When asked if there
could be a problem in muni land he responded:
“We don’t at this point see anything of that magnitude happening.”
“State and local governments have the tools to deal with their fiscal problems and debt”
“The municipal bond market currently seems to be functioning reasonably well”
Huh? Not a big deal? States can handle it, no problem? Muni
market doing just fine? (what the hell was December?) Ben is not
concerned about this as he is flooding the markets with liquidity. He
thinks liquidity is the solution to solvency:
“The bottom line is that there is a lot of liquidity in the muni bond market and it seems to be doing okay.”
Bernanke went on to confirm that EVEN IF NECESSARY the Fed could not intervene. Apparently it is against the rules:
“I don’t think the Federal Reserve has the authority and I don’t think it would be appropriate for us to do that”
The message I get is that (a) Ben is in denial and his hands are tied and (b) Congress is not going to lift a finger to help out the states. An interesting state of affairs.
Wait a minute. That is not how things are done in the USA. When there is a need, we bail! Right?
We have already spent a few Trill doing that. I mean, do "they" think
that saving Citi a few years ago is more important than saving
California or NY in 2011? Let’s put it this way, if Cali goes down it
will bring a dozen states with it. This would be a situation far worse
than anything that we saw in 08.
When push comes to shove (it will) Cali/NY are going to prove once again
that they send more tax dollars to D.C. than they get back. That fact is going to be impossible for Washington overcome. The
bailouts that the Fed doesn’t see as necessary and congress doesn’t
want to touch will happen. It has to. The reality is that Ben does see the problem and congress knows that it will HAVE to get involved. They admitted as much with this exchange:
Senator Conrad
“Maybe there are ways to help with creative financing.”
Chairman Bernanke
“We do have the authority to buy very short-term municipal debt”
Tell me again why I should be rushing out to buy some long-term muni bonds?
"Common" Weasel
"Marketing" Weasel
Albino "Killer" Weasel
»
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It's a little cleaner then my plan of labeling the 99ers enemy combatants. Though I'm sure the Pentagon would drool over news announcements of millions of enemy combatants on US soil.
Funny shit. :>)
Northcom is on alert.
http://www.northcom.mil/
Interesting perspective. I don't agree at all. You know the word contagion. Greece to Ireland, Portugal, Spain and then nuclear winter.
It also goes, Cali, Ill, NY and then nuclear winter.
The odd thing is that we just might find out who is right, you or me? If we we lose a state there will be no soft landing is my bet.
You won't know if they are gonna bail until they do it. Bernanke knows that this is an incredible slope that he could be stepping on. He also knows that the mess is much bigger than he is letting on. What they say and what they do may or may not correlate.
This, exactly this.
Doublespeak. Doublethink.
First they publicize the experts saying that there will be no reduction in the chocolate ration from 30 grams. Then Winston Smith in the Ministry of Truth changes the publication in the records to have the experts forecasting a need for a reduction in the chocolate ration. Then, they announce the increase in the chocolate ration -- to 20 grams. The people cheer and whoop for the good news.
edit: With less Orwellian hyperbole, you can't ever have a central banker speak the truth in public. Central banker Alan Blinder said so.
Contagion is precisely the point. One possible interpretation of what Bernake is saying is that "we won't bail them out unless a problem shows up". I.e. if they can get away without another Lehman happening, they will try to do so.
That's not exactly a proactive stance, but it is keeping in line with what the Fed has done.
And if another Lehman does show up, I shudder to think of the situation.
They will bail out the States, if not directly, then indirectly. The TBTF Banks will be buying munis with Fed money. A phone call from Ben and Timmay will call a meeting to tell the banksters that they will buy munis or they will no longer privy to insider government information and be forced into bankruptcy.
If the instruct the banksters to buy munis, say goodbye to the stock market.
Unlike the Feds, the states can't just paper over deficits forever by borrowing, even if there is someone to buy the bonds.
Please. No need to use the stick when the carrot is better. Sell the long-term debt into structures that work more or less the way VRDN's do, let the banks be backup liquidity providers (for a suitable fee) with Fed money to back them. Nice and clean.
Don't forget the MOthers of Invention:
http://www.google.com/imgres?imgurl=http://www.science.uva.nl/~robbert/zappa/files/jpg/Weasels_Ripped_My_Flesh.jpg&imgrefurl=http://www.science.uva.nl/~robbert/zappa/albums/Weasels_Ripped_My_Flesh/09.html&h=707&w=706&sz=124&tbnid=trVO0nsh1PZWsM:&tbnh=140&tbnw=140&prev=/images%3Fq%3Dweasels%2Brip%2Bmy%2Bflesh&zoom=1&q=weasels+rip+my+flesh&usg=__CooZYJX7KcRE5eUCG0PIiKfo81E=&sa=X&ei=HUgrTaudHtG6nAeuiYGiAQ&ved=0CDwQ9QEwAw
If their lips are moving, then they are lying. Banks will get money shoved at them surreptiously and obviously, while states and munis will get it through the back door.
"Creative financing." Now that's what I like to hear. It's the sound of fees being collected....
I think the 'Municipal default' occurs in a Keynesian grey spot.
With regard to Bernanke`s recent comments to the effect that "government bailouts of the states are not an option", I say, yeah, right - just like subprime was "contained". Easy to draw a line in the sand when the tsunami is still out on the horizon. And with respect to BB`s comment that the Fed lacks the authority to bail out the states I would ask, since when did you let niggling technicalities like "is it legal for us to do this?" stop you?
Plus it would cost "only" a few hundred billion to buy all state muni bond issuance for the year - chump change for Zimbabwe Ben.
Giffords was shot because average Americans such as Jared are slowly but surely going BATSHYT as they witness the blatantly rampant corruption of our government leaders.
A country that starts unprovoked, needless and criminal wars, meddles in the affairs of countries by killing foreign leaders and underming governments it doesn't like, should expect chaos at home.
Read http://seenoevilspeaknoevilhearnoevil.blogspot.com/
Don't want to open this can of worms but can I just amend this to say "Some contributing factors to the shooting were..."
if they can throw (one) state under the bus (see Lehman) then the rest of them will get papa Ben's bailout money. so (one) state must be subsumed, are Alabama and Mississippi the same thing really? The two Dakotas?
I'm sure Bernanke made the same statements about mortgage backed securities, prior to 2008.
Cheer up Ben, you'll have fewer Senators to argue with.
You are both invited to the Banzai7 graphic humor workshop next month...
Wasn't it Zappa that did, "weasels ripped my flesh"?
Yes.
I am wondering if William can do some Firesign Theater treatments. Nick Dangeresque stuff.
William?
Is your workshop BYOBP.......Bring Your Own Bootleg Photoshop?
But it in the APP store. Use Reggie's account ;-)
LOL
I suspect Reggie has been officially banned for his (and his children's) lifetime from owning, touching, drooling on or coming within 500 yards of any Apple product. In fact I'm certain that if you actually read any Apple product user agreement you will find Reggie's name in there. :>)
+1000 ROFLMAO: Cannibalism!
nice work everyone!
Ok Bruce, you're on the record for a future "I told you so".
I can't help but think sometimes that these Congressional "conversations" are nothing more than elaborate Weasel mating rituals. Political porn of the cross breed variety. One of their offspring is below.
Yes, Barney Frank is a weasel. And a slimy one at that.