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They Did What?
According to a number of news stories the Build America Bond program is
dead. It is possible that some last minute deal will be made for BABs,
but time is running out and there does not appear to be sufficient
support. This from a Reuters story:
Congressional Republicans will block any inclusion of Build America Bonds.
“We have a very firm line on BABs -- we are not going to allow them to be included," a congressional Republican aide said.
I wrote a few articles over the past few months on BABs. My
articles always trashed the program. It is just a subsidy that hides
weakness. I hate things that go in that direction.
I did all that writing because I was absolutely convinced that BABs
would be extended. There were dozens of lobbyists all over this. Wall
Street’s white spats crowd spent big bucks to get this kicked down the
road. Big states like California, New York, Texas and Illinois were
pushing their legislators hard.
It wasn’t the political muscle that lead me to believe that BABs would
be extended. I saw it as a critical component in municipal finance. If
it was eliminated I thought we could quickly evolve into a crisis with
certain states debt. I was by no means alone in that observation. This
comment from the rag for the muni market, The Bond Buyer:
If the
Build America Bond program expires at the end of this year, long-term
tax-exempt bonds could lose their latest pillar of support.
Parts of me want to be proved right about the significance of this
development. I am one of those who thinks there is too much debt
creation at the governmental level. Well, it just got more difficult for
munis to borrow. By itself, that will curb debt creation.
There is another part of me that is saying “gulp”. By definition,
you do not see a black swan in advance. I did not see this at all. I
don’t count, but the market does. If you follow markets you now have to
have a screen for muni pricing. As this sorts out over the next 60 to 90
days the muni market might drive the global markets.
I’m thinking to myself, “How could they have blundered on this?”
They extend the Bush cuts for everyone. They tack on another 120b of
deficit spending with a cut in SS taxes. And they throw in another year
of unemployment checks. They threw the sink at the economy at the sake
of the deficit. But they failed to pass BABs? Knuckle heads. If there is
a hiccup that takes a big state out of the market for a spell it will
trump the economic benefits of all the new deficit spending. It might do
it a few times over.
Links to my prior posts on BABs:
Here, here and here
»
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The financial/MIC swindle is global, and yet some don’t even recognize it as happening beyond the border of their own state.
To believe that the economic rape of California has only been done to the advantage of those living within the state is ridiculous. California has been polluted and economically deformed by its military contracting, left exposed to federally mismanaged immigration, and been subject to some of the worst repercussions of Fed financial policies. To imagine California's political budgeting does not reflect the goals of the elite power brokers is nonsense.
As long as we continue to believe bailouts are done to benefit the “Irish” or “Californians” or lowly civil servants, we will remain misdirected and misguided.
Go take a look at MUB.
New lows 99.36
The collapse is on.
Nobody is even close to having this on their radar screen.
Don't worry, top senate agenda item today is gay illegal aliens (dream act) in the military. So the CONgress be busy working for american interests.
I'd like to buy a small distressed library ...
Oh wait, I'd need some real money to do that with, damn.
Bloody black swans get so much credit for so much havoc, and they ain't never done nothing. There's what like one or two black swans in Australia somewhere? Fact is they really are statistically insignificant. You couldn't even find a photo, you had to use a white swan in shadow.
What you humans are suffering from is an infestation of absolutely ordinary black crows. Which for whatever reason you like to romanticize as being something more meaningful or mysterious. Thus quote the raven nevermore and all that mystic crap. They're just ordinary crows. Deal with it, you pathetic losers.
---Bruce----- yeah, conflicted is a correct viewpoint. It would be good to see the $ amount or this. This alone can not save Ca. but it will not help the 6th largest economy in the World to survive.
Blaming the Republicans may be the Democrat war cry but it is again false. Don’t know how many Republicans are for or against it but. The Democrats can pass ANY legislation right now that they want to. They have the votes in both houses to send it to the White House. The Health Care bill is an undeniable example. They can back room it for a day and have it on Obama’s desk by FRIDAY.
If this needs to be passed and is not passed----- the responsibility falls directly on the Democrats. I have been sharpening the tines of my pitch fork for the Democrat airheads. Now I gotta get another pitch fork for the Republicans incase I bend up this one. A plague on both their houses.
Governments NEED to start defaulting.
Nothing else will stop them from borrowing.
Hopefully lenders are not stupid enough to lend to governments who defaulted. Unfortunately, I suspect they will... in droves... on the basis of this logic: Gee, now the state has no debt, so they can pay for new debts.
However, until and unless a "no debt financing" of government is passed as a constitutional ammendment (fat chance), the only way to stop the drunken sailors in all levels of government is for them to default.
If there are morons out there who care so little about their money that they'll lend money to serial defaulters, then hey, what a great way to finance government. But eventually they've got to wake up... right?
How can the people in "government" justify making people pay for services delivered to people before they were born... or were old enough to vote? The entire system is corrupt beyond repair.
http://blogs.reuters.com/james-pethokoukis/2010/12/07/secret-gop-plan-push-states-to-declare-bankruptcy-and-smash-unions/
Secret GOP plan: Push states to declare bankruptcy and smash unionsJames Pethokoukis
Congressional Republicans appear to be quietly but methodically executing a plan that would a) avoid a federal bailout of spendthrift states and b) cripple public employee unions by pushing cash-strapped states such as California and Illinois to declare bankruptcy. This may be the biggest political battle in Washington, my Capitol Hill sources tell me, of 2011.
That’s why the most intriguing aspect of President Barack Obama’s tax deal with Republicans is what the compromise fails to include — a provision to continue the Build America Bonds program. BABs now account for more than 20 percent of new debt sold by states and local governments thanks to a federal rebate equal to 35 percent of interest costs on the bonds. The subsidy program ends on Dec. 31. And my Reuters colleagues report that a GOP congressional aide said Republicans “have a very firm line on BABS — we are not going to allow them to be included.”
In short, the lack of a BAB program would make it harder for states to borrow to cover a $140 billion budgetary shortfall next year, as estimated by the Center for Budget and Policy Priorities. The long-term numbers are even scarier. Estimates of states’ unfunded liabilities to pay for retiree benefits range from $750 billion to more than $3 trillion.
Republicans in the House of Representatives already want to stop state and local governments from issuing tax-exempt bonds unless they are more forthright about these future obligations. Republican Representatives Devin Nunes and Darrell Issa of California and Paul Ryan of Wisconsin have introduced a bill that would require state and local governments to estimate the size of public pension liabilities if their assets earned a more conservative rate of return than many plans currently expect. Failure to do so would result in the suspension of their ability to issue tax-exempt bonds
Greater transparency on these obligations can’t be bad. In fact, the federal government itself would do well to report deficit numbers not just on the current cash-in, cash-out basis but also incorporating the underfunding of promised pension and healthcare benefits to retirees.
But it’s about more than just openness. Some Republicans hope the shock of the newly revealed debt totals will grease the way towards explicitly permitting states to declare bankruptcy. Indeed, legislation amending federal bankruptcy law is currently being prepared by congressional Republicans. Local municipalities do declare bankruptcy from time to time, most famously California’s Orange County in 1994. But states can’t. Allowing them the same ability to renegotiate obligations could enable them to slash public employees’ lavish benefits, a big factor in their financial woes. In a recent issue of the The Weekly Standard, bankruptcy expert David Skeel of the University of Pennsylvania walks through the implications:
It wouldn’t be easy to change the law. Public employee unions have traditionally carried great influence with Democrats, even if President Barack Obama’s willingness to freeze their pay on the federal level suggests their clout may be waning. From the Republican perspective, the fiscal crisis on the state level provides a golden opportunity to defund a key Democratic interest group. For the GOP, it’s an economic and political win.
To the many who have commented that I am blowing smoke two ways out of my ass on this one you're correct. I hate BABS as it is a subsidy. All subsidies create dangerous distortions. It allows "bad things" like too much debt being created. BABS facilitates the likes of California/NY to borrow when the market should be saying no. So my bottom line is that this is a good thing. It may cause some pain, but pain is necessary if we are to get "well".
But the flip side of this is that Munis is a $3T market. That is T as in trillion. Rule number one. Don't fuck up a $3T market and expect a soft landing.
There is (as always) a best and worst case outcome on this. The best means that debt is harder to get and it squeezes the states into less deficit spending. that would be nice and the desired outcome. The worst case on the other hand is something that might be hard to describe. A default of a big state would surely mean a new recession, it could be much worse. A crack up in munis could lead to a run on Treasuries. That of course is your Black Swan.
We will have a very difficult time if Cali goes down. The odds of that happening just went screaming higher. We shall see where this ends. My guess is by the end of February (at the latest) we will know.
Point well taken, Bruce, but many of us never expected a soft landing.
Here is the underlying problem. Many bright, well intentioned people in the New Yawk-DC axis refuse to admit that most of the country is already in a depression. That is not a term I use lightly, but look at the complete lack of decent jobs, or in many areas, of any jobs.
Housing is a disaster. Foreclosure gets all the ink, but in the mid-atlantic rent often consumes half or more of a young person's disposable income. WTF? How long can that last? No matter who you are, or what you think you have, any serious illness will ruin you financially, and the government is off on its own Marxist mania, making things worse on a daily basis.
The great bulk of the country is hurting, and getting pissed. There will be hell to pay, but of the many scenarios, I don't see a soft landing.
thanks for covering, educational, and you hit all the bullet points.
This way Ben can be invited to destroy America - maybe even begged.
My thinking:
All in all, I've been impressed by the Republican party recently. It's not about "stimulus," it's about getting fundamentals back into shape.
Don't raise taxes in a recession: check.
Cut wasteful federal spending if you can: check (in principle).
Don't subsidize corrupt municipal governments: check.
The payroll tax cut is OK, but Obama should have gone for a permanent increase in basic deductions, for example making the first $30,000 of income tax free for an individual, $60,000 for a couple.
Republicans are against BABs because it is a blue state solution, (New York, CA), wake up and smell the Kool Aid.
From on the ground the distortions are incredible, cities closing schools, fire and police, with one hand, and buying up property for redevelopment, making deals with corporate franchisees, pushing real small business aside. The program was creating further misallocations of capital, new construction which lasts a few months, for bureaucracies which go on forever. In a fair and balanced economy there is no place for such a program. It was however a partisan move, against a feckless President and his party..
Bruce, like many, seems to want to avoid chaos at all costs. Chaos, however, is sometimes the best/only option left if there's to be any hope of righting the ship.
Bruce, you've lost a bunch of people with this one, including me.
So that's why PCK suddenly tanked almost a month ago!
The insiders had learned the BABs would not get extended...
Of course, if a state goes tits up and there's no BAB, why, Unky Sugah's printing press will have to ride to the rescue with...ahem...strings attached. And the moronic central planners in Warshinton get MORE control. Qui bono...
Let me get this straight: BABS facilitates harmful, deficit spending but if we halt BABS, we halt the harmful, deficit spending (which should be good) and that is really, really bad.
Bruce, you were against deficit spending when you thought it would continue, but now that it might stop you are for it.
I know great minds are inconsistent but your mind has gotten so "great" that I can't quite follow you.
Someday we have to stop digging the hole deeper. That is a mathematical certainty. When we stop digging, it will be disruptive because all the people who have spent their lives making shovels will suddenly be out of work, not to mention all the people the govt pays to dig as fast as they can. However, only when we stop digging, however disruptive that is, can we start building ladders to get us out of the hole and maybe even to climb above ground. This transition will be very painful. Probably will kill some us because switching from shovels to ladders is going to be a hard process and until we learn how to live a new way, those of us raised on the old way of living are going to be confused (and hurt).
However, the world does not belong to the old, even though we have title to all the land and we have written promises from the shovelers about how much of each spadeful that we get, etc. The productive young are going to have to jettison the extra weight if they are ever to climb back above ground. Not just the old, but also the useless, and the wastrels that will left behind in mass burial pit our way of life has become.
This is only a black swan to those who imagined that wishes really do come true. The truth has been obvious for decades, only the timing of facing the truth has been in doubt. We have put it off too long but now we must embrace reality.
Our nation has faced similar challenges before. The resolution of the struggle between state's rights and federal power (embodied in the slave vs. free state standoff) was decided by a great war. But the issue had festered for 50 years and "compromises" had kicked the can down the road until only a war could settle the debate. The crisis came after a seemingly small event, the election of Lincoln, that would not have resulted in a war a decade earlier.
Similarly, for 80 years the issue of government control of the economy and responsibility for our lives vs. individual enterprise and responsibility to take care of ourselves is reaching a head. Will another war be required to resolve this conflict? I don't know but I do know that the resolution of this issue cannot be put off much longer. Once again, the crisis will be brought on by a small event that 10 years ago wouldn't have caused a major disruption. Is the cancellation of BABS that event? I don't know. But it won't be the cause of the crisis, only the event that forces us to realize that the crisis exists. Lincoln's election did not cause the Civil War, it just forced Americans to realize that resolution of the North-Midwest/South divide had to be resolved.
It appears that it is time to resolve the Constitutional Republic/Socialist Republic issue in America. Whatever forces the resolution of this debate, it will not be the cause of the crisis, only the trigger.
I am sorry that I must face this issue now, at the end of my life, but we do not choose our time, only our response to the challenges of our time.
I agree with you, and I respect what you've written. But we aren't there yet. Killing BABS is for show. The Fed has provided direct support to Harley Davidson, GE, Bank of America, Citibank, Goldman Sachs... A state is TBTF. The Fed will buy their bonds.
Ding, ding, ding, give the DonutBoy a cigar!!! That is the purpose. When people get spooked off munis, the Fed will step in with QE3 and buy all of them. When the states are unable to repay the bonds, the Fed will, thru the Federal Governement, recommend the states "reform" their economies and sell state land, privetize state functions (prisions, police, EMS, FDs, schools) and sell them off to selected (by GS and JPM) corporations.
Sounds far fetched? Look no further than the IMF and South America.
Very thoughtful post, IH. "The First Rule of Holes" is always difficult to implement, isn't it?
So Bruce, you only trash "abusive subsidies" when you think it doesn't matter? You might want to consult a few books on ethics and personal responsibility, even the principle of contradiction.
The essence of government is force. Those living in decently run states should not be forced to subsidize the abuse and stupidity of others.
Hell yea!
That's right, Californicate of the Moonbeam, we're talking about you.
Those living in decently run states should not be forced to subsidize the abuse and stupidity of others.
Yeah, but that never happens. Under the guise of "equal protection" the corrupt failures pull everyone and everything down to their level, and take their money and resources. This has been going on for years and is one of the biggest crimes of federal government.
Socialism is the primary disease of our age.
The 14th Amendment has a colorful history. The text books say it was "adopted" while all other amendments were ratified. The difference is that it was forced on Southern States after the war and many Northern States tried to withdraw their approval in disgust at what was happening.
In any case, it is never enforced in favor of:
Men: draft, divorce, paternity, pension, and custody issues
Whites: affirmative action
Gentiles: wouldn't that be nice?
Socialist corporatism will be our undoing.
The welfare to the wealthy is staggering.
Even before the crash it was enormous.
92B in 2006 alone.
http://www.cato.org/pub_display.php?pub_id=8230
yeah I always wonder what people would have thought if Bush had given some guy a medal for being a credit to the white race.
Amen. This shit sandwich isn't going to taste any better a couple of years from now.
Everyone says 'enough is enough', then finally when someone puts their foot firmly down and says 'game over' everyone yelps like a whipped pup! Isnt it time the medicine was taken?
You are on the money. It's like the Tea Party folks wanting reform without dealing with Social Security and/or Medicare. Can't be done.
Can't be done and won't be pushed much because from what I can tell, based on the fat-assed gray haired count, a lot of them are collecting on both programs...and if not, their parents and grandparents are recipients.
They should be careful what they wish for.
Having an impoverished elderly relative with little to no income and no access to health care curtails you ability to get ahead, let alone make a living. It also limits the time you can spend at pointless rallies...Unless your plan is to let them starve in their own filth.
Your scenario is gruesome, but true.
Some commentators believe BABS to be less crucial to local budgeting than others.
Be that as it may, some apparently fail to fully perceive the deceptiveness behind piecemeal proposed government cutbacks or "reforms". It is one thing to oppose government excess. It is quite another to support prejudicial cutbacks for some in the context of continuing excess for a few others.
As some have noted, nowhere is it proposed to fix the economy as a whole. The bankster and militarist consortium will continue their ripoff. Selective “cutbacks” may only be designed to ruin particular segments of society for crass purposes. Again, a few commentators have already suggested the possibility of ulterior motives behind a potential crippling of local governments.
Similarly, unemployment compensation cutbacks will not suffice to create jobs. Nor will cutbacks in Social Security “balance” the budget., ANY MORE THAN WOULD RAISING TAXES.
I contend any such “cutbacks” will be designed to weaken opposition to the continuation of the much larger national and global swindle.
Please spare us all the argument that “one has to start somewhere”, lest we be reminded of Obamacare and the fake military drawdowns, and all the other false “beginnings”.
CA, IL, and NY are all Democratic states.
For the Republicans, the sooner they fail the better.
The question is why O (or any other Dems) would agree to a tax deal without a BAB extension in order to keep CA, IL and NY afloat...
Perhaps the continued tax cuts for high-income Americans are Summers last act of blithering incompetence -- engineered solely for his imminent mega-pay raise as a nouveau-"investment banker."
This is all complete BS! Since when are all the states going to default due to the resolution of a program that has been in existence for a few months?? As others have pointed out, the states will simply go back to what they have been doing for the last 100 yrs. Now, maybe the states are hanging by a thread--but that's an entirely different argument. BABs were never more than a bone the Feds threw to the states, back when they were throwing them to anyone with a pulse. Let the BAB program die!
I normally really like Bruce's musings, but he is way off on this one...
You don't have the entire picture. BAB is just a pressure point to create legislation that will allow States to reneg on their public employee (union) retirement/benefit programs.
BAB's only a small roadblock that needs to be removed. Public sentiment will be created by telling Texans that they are bailing out the creeps in California.
Dear Leo,
from the start of the crisis I have watched as almost every government agency has worked to make things worse. At least thyat was the analysis of what I thought the end result would be. so I decided to give myself an education in economics. I was also in an MBA program and used to laugh at what was beinbg taught. Thye only conclusion I was able to reach was the crisis was designed to happen by the big boys. The second conclusion was that we are living in a kleptocracy. The third is that there will be no reform unti there is an armed struggle. Of all of my predictions the only one I am stil waiting for is the violence.
It is clear the oligarchy see this as well. You can see their preparations happeing with expansion of security aparatus, censorship, (the response to the wikki guy is intimidation for the future), they have created a purposeful climate of fear in the populace to maintain control and their is a slow erosion of civil liberties.
We have become a fascist state, not nazi, facist:
Fascism (pronounced /?fæ??z?m/) is a radical and authoritarian nationalist political ideology.[1][2][3][4] Fascists seek to organize a nation according to corporatist perspectives, values, and systems, including the political system and the economy.
at this point I wonder if US forces will fire on civilians.
Civilians who resist (or potentially resist) military control will be categorized as “insurgents”.
The mercenary (no longer citizen) US military currently fights “insurgents” everywhere that there is opposition to drug lords, despots, and sheikhdoms.
To what extent the public and privatized military is now populated by non-citizens, gang-bangers, enhanced interrogators, death squad trainers, and other gung-ho types is difficult to assess, but optimism appears to be uncalled for.
The biggest myth is that the authoritarian military (and its 'Blackwater'-CIA-Homeland Security extensions) is protecting “freedom” instead of endangering it.
Insurgents, nice try, but try Domestic Terrorists.
And whoever is ordered to fire on civilians will do so.
Big paychecks. Also, Iraq, and Trasncanistan, have neve IMHO been about those countries nor terrorists.(totally).
I look at it as more a training ground for Urban warfare....here.
If anyone deserves the "domestic terrorist" tag, it's the Federal Government.
...but the Fed's do the tagging.
They don't appear to be having problems firing at civilians already ;-)
In case you're asking about the US civilians, I believe they would perform consistently.
Notice how everyone has been trained to call people 'civilians', and not by their rightful name 'citizens'? The next drop down into total slavery is when the govt starts calling the people subjects.
uh, the proper target name is "tweeter"
I just cannot see the military in uniform in the streets of usa. I am talking about the us military. Just too much open space between actions to defend on a constant basis. I can see open fire on looters, criminals and such by local LE. The american gunholders have far too long been raised on the 2nd amendment and a military firing on thier own family in this day and age I think would be out of the question. The internet would carry the lead up and people would be informed, not like in the civil war.
Yeah, maybe you should have been at Kent State in 1970 or Little Rock in 1957. When citizens are re-named "rioters" or "hippies" or "enemy combatants" things change.
It's all in the nomenclature.
http://en.wikipedia.org/wiki/Kent_State_shootings
http://encyclopediaofarkansas.net/encyclopedia/entry-detail.aspx?entryID...
Videos for gun confiscation in new orleansQuestion for the group: If BABs end, and municipalities start to default due to funding shortfalls, what is the likely sequence of events? Won't money rush to the exits from the bond market (sort of happening in a small way now), and flood into commodities (even more than now), since equities are a manipulated shell game and everyone knows it?