The final nail in the zombified Build America Bond program may be finally approaching, in which case the dead cat bounce in the MUB may be about to end. After late last week Gerald Connolly,
D-Va, proposed an extension to the BAB program through 2012, resulting in yet another risk bounce in the one asset class that has seen a major walloping in early January, not to mention record outflows (and a corresponding inflow into US equities), it seems that the GOP is not very excited about the prospect of further state subsidies. From the WSJ: "Key Republicans signaled they would block renewal of the Build America
Bonds program as the Obama administration prepared to reinstate the
bonds in the 2012 budget plan due Monday. Build America Bonds were originally introduced as part of the $787 stimulus program in 2009 but expired at the end of last year. They allowed states and localities to sell taxable bonds and receive a federal subsidy payment from the Internal Revenue Service equal to 35% of the interest costs on their bonds. But Sen. Orrin Hatch (R., Utah), the ranking Republican on the Senate Finance Committee, said late Friday that BABs were "simply a disguised state bailout." "These bonds rightly expired at the end of 2010 and it is my hope the Obama administration does not try to resurrect such a nonsensical provision in their upcoming budget," he said." Yet that is precisely what the president intends on doing, while somehow pretending that the budget will actually cut $1.1 trillion from the deficit over the next decade. Just how crazy is it to request that at some point America has a president and economic advisors who actually understand at least the most basis mathematical concepts, the key of which is that spending does not equal saving...
From the WSJ:
The Obama administration will propose reintroducing BABs, according to three people outside the administration who were briefed on the matter. They expected the administration to propose a two-year extension at a 28% subsidy rate for the bonds.
A Treasury spokeswoman declined to comment.
Even a 28% subsidy rate wouldn't garner GOP support, according to a Republican Senate aide. The aide said the rate wasn't revenue neutral, meaning it would cost the federal government more in subsidy payments than the government loses in revenue from traditional tax-exempt municipal bonds.
Democrats see these bonds as an effective tool for job creation and funding infrastructure projects. Some were already trying to reinstate them ahead of the budget proposal last week.
On Thursday Rep. Gerald Connolly (D., Va.) introduced a bill that would extend the bonds at subsidy rates of 32% in 2011 and 31% in 2012.
That bill has been referred to the House Ways and Means Committee, which handles tax legislation, but it is unlikely to advance. Ways and Means Chairman Dave Camp (R., Mich.) said last year Build America Bonds were "a highly subsidized spending program." A spokeswoman for Mr. Camp declined to comment Friday.
So while Bill Gross is playing golf at Pebble Beach, he may consider making some reverse inquiries to Larry Meyer and find out just how bad the bill will be if for the first time in history, the Pimco head does not end up getting what he wants. Oh well, time for El-Erian to pen another politically correct yet modestly critical op-ed, promptly followed by another monthly letter by Gross decrying just how bad of a ponzi scam the US financial system is, lead by that satan among satans Bernanke, when those axed alongside the Fed do not get what they want every now and then...