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Bankruptcy could permit a state to alter its contractual promises to retirees, which are often protected by state constitutions, and it could provide an alternative to a no-strings bailout. Along with retirees, however, investors in a state’s bonds could suffer, possibly ending up at the back of the line as unsecured creditors.
“All of a sudden, there’s a whole new risk factor,” said Paul S. Maco, a partner at the firm Vinson & Elkins who was head of the Securities and Exchange Commission’s Office of Municipal Securities during the Clinton administration.
http://www.rollingstone.com/politics/bl ... y-20110117" onclick="window.open(this.href);return false;Don't forget Denver and a host of school districts in Pennsylvania and Los Angeles County, among many, many others.
I bet that we're going to find out that the corruption in the municipal debt sector has been greater than is currently believed. The whole auction-rate bond world is set up in a way that makes corruption on the part of the banks almost an inevitability -- it's a paradise for churning and fee-gouging, with a setup not to unlike the option-ARM mortgage deals. Just like option-ARMs, municipalities take more upfront cash in exchange for the variable risk of higher potential future rates; municipalities who sign up pay relatively low interest rates to borrow money through bond auctions, but the catch is that they have to hold auctions for that same bond repeatedly, and if any of those auctions fail, the borrower suddenly has to pay fantastic penalty rates. To give just one of hundreds/thousands of examples, the auction for a bond for Lynchburg, Virginia failed a few years back and in just a week the interest rate jumped from just above 4% to 15%. On that same day three years ago, 29 other auctions failed, leaving the bonds with penalty rates of 12%-18%. Imagine dozens of cities suddenly looking at paying three and four times their usual bill for debt service, and you can imagine how these budget crises develop.
This is how banks make their money in the credit world: you offer lots of cheap cash, but you sign the borrowers up to lengthy contracts full of loopholes and catches, and they slip into any one of them, suddenly they're paying fees and penalty rates through the wazz. We've all been there with credit cards, and that's actually our money, and we're playing close attention to every figure in every bill. Muni scams on the other hand involve taxpayer money, cared for by public officials who may or may not have reached office with the help of the lending bank in question. It's almost impossible to imagine an easier method of stealing: it's like breaking and entering into a house whose owners leave the door open along with a note explaining that they won't be back for four years.
The municipal debt business used to be maybe the most boring sector of the whole financial services industry. Municipalities borrowed money at low fixed rates over long terms, then paid the money back on time, end of story. It wasn't until the banks started cooking up these crazy variable-risk instruments and teaming up with corrupt politicians to get taxpayers to sign their futures away on them that these debt problems began spiraling out of control. I think a lot of these auction-rate deals and interest-rate swap deals should be declared illegitimate, certainly when there's a pay-for-play issue (which was the case in Jefferson County and other arenas), if the banks at any time committed fraud during their service of these deals (particularly on the auction-rate side; more on that some other time), and if other predatory tactics were used.
Doubt that will happen, though. I imagine instead we'll see federal and state bailouts of the more troubled regions, with much of the money going to pay off debts to bondholders and/or banks.
Ivytalk wrote:The warning signs for this have been visible for years. This is what happens when governments become the employers of first resort.
Maybe you can educate me, but most SS privatization plans are based on the tax payer having the market risk in the privitized portion. The problem here is that the states have a defined payout which far exceeds their ability to pay so they were reliant on the market to cover there asses. When the market tanked, their asses were exposed.kalm wrote:Ivytalk wrote:The warning signs for this have been visible for years. This is what happens when governments become the employers of first resort.
Privatize social security too.
it's pathetic... the fault for this shit is being passed on to public servants whose only crime was, for the most part - working for below market wages for their skills for their careers. now THEY are being vilified, instead of the candy ass politicians who RAIDED THEIR PENSION FUNDS RATHER THAN MAKE HARD DECISIONS ABOUT TAXING AND SPENDING.OL FU wrote:Maybe you can educate me, but most SS privatization plans are based on the tax payer having the market risk in the privitized portion. The problem here is that the states have a defined payout which far exceeds their ability to pay so they were reliant on the market to cover there asses. When the market tanked, their asses were exposed.kalm wrote:
Privatize social security too.
But I wait to be educated.
My job isn't to educate you. My job is to spit ball with half truths and hope someone more eloquent can come along and make 'em stick.OL FU wrote:Maybe you can educate me, but most SS privatization plans are based on the tax payer having the market risk in the privitized portion. The problem here is that the states have a defined payout which far exceeds their ability to pay so they were reliant on the market to cover there asses. When the market tanked, their asses were exposed.kalm wrote:
Privatize social security too.
But I wait to be educated.
So what will happen? The Republican House is not going to fund a bailout of California, Illinois, etc.danefan wrote:Read this this morning.
God help us if this happens.
The muni-bond market would collapse and a huge portion of this country's retirement savings would be obliterated.
Thank god for political deadlock. I cannot imagine the Republicans in the House will let this happen.
They may allow a quasi-bankruptcy that makes bond-holders and pulbic pensions secured creditors.HI54UNI wrote:So what will happen? The Republican House is not going to fund a bailout of California, Illinois, etc.danefan wrote:Read this this morning.
God help us if this happens.
The muni-bond market would collapse and a huge portion of this country's retirement savings would be obliterated.
Thank god for political deadlock. I cannot imagine the Republicans in the House will let this happen.
TwinTownBisonFan wrote:it's pathetic... the fault for this **** is being passed on to public servants whose only crime was, for the most part - working for below market wages for their skills for their careers. now THEY are being vilified, instead of the candy ass politicians who RAIDED THEIR PENSION FUNDS RATHER THAN MAKE HARD DECISIONS ABOUT TAXING AND SPENDING.OL FU wrote:
Maybe you can educate me, but most SS privatization plans are based on the tax payer having the market risk in the privitized portion. The problem here is that the states have a defined payout which far exceeds their ability to pay so they were reliant on the market to cover there asses. When the market tanked, their asses were exposed.
But I wait to be educated.
this is **** retarded... the ultimate in passing the buck. We're reaching the logical conclusion of Republican tax and spend policies... decrease revenues and never really cut spending - they call it starving the beast - and now we're bankrupt... pathetic.
There's always one in the crowd...lurkingIvytalk wrote:TwinTownBisonFan wrote:
it's pathetic... the fault for this **** is being passed on to public servants whose only crime was, for the most part - working for below market wages for their skills for their careers. now THEY are being vilified, instead of the candy ass politicians who RAIDED THEIR PENSION FUNDS RATHER THAN MAKE HARD DECISIONS ABOUT TAXING AND SPENDING.
this is **** retarded... the ultimate in passing the buck. We're reaching the logical conclusion of Republican tax and spend policies... decrease revenues and never really cut spending - they call it starving the beast - and now we're bankrupt... pathetic.
Who paid for this rant? AFSCME?
Yes, yes....I'm sure you right....and I'm also equally sure that unions representing the pensioners have no fault in this outcome.TwinTownBisonFan wrote:it's pathetic... the fault for this shit is being passed on to public servants whose only crime was, for the most part - working for below market wages for their skills for their careers. now THEY are being vilified, instead of the candy ass politicians who RAIDED THEIR PENSION FUNDS RATHER THAN MAKE HARD DECISIONS ABOUT TAXING AND SPENDING.OL FU wrote:
Maybe you can educate me, but most SS privatization plans are based on the tax payer having the market risk in the privitized portion. The problem here is that the states have a defined payout which far exceeds their ability to pay so they were reliant on the market to cover there asses. When the market tanked, their asses were exposed.
But I wait to be educated.
this is fucking retarded... the ultimate in passing the buck. We're reaching the logical conclusion of Republican tax and spend policies... decrease revenues and never really cut spending - they call it starving the beast - and now we're bankrupt... pathetic.
This is a prime example of why you don't allow government employees to form unions. Their unions are in a postion to demand the maintaining of unsustainable pension programs for public servants with public money. Or the unions use the same public money obtained from union dues to campaign against any politician who has the cajones to suggest that perhaps a modification to this unsustainable pension program is needed before our municipaltiy crumbles under the weight of this debt. TwinTownBisonFan wrote:it's pathetic... the fault for this **** is being passed on to public servants whose only crime was, for the most part - working for below market wages for their skills for their careers. now THEY are being vilified, instead of the candy ass politicians who RAIDED THEIR PENSION FUNDS RATHER THAN MAKE HARD DECISIONS ABOUT TAXING AND SPENDING.OL FU wrote:
Maybe you can educate me, but most SS privatization plans are based on the tax payer having the market risk in the privitized portion. The problem here is that the states have a defined payout which far exceeds their ability to pay so they were reliant on the market to cover there asses. When the market tanked, their asses were exposed.
But I wait to be educated.
this is **** retarded... the ultimate in passing the buck. We're reaching the logical conclusion of Republican tax and spend policies... decrease revenues and never really cut spending - they call it starving the beast - and now we're bankrupt... pathetic.
Sometimes I think we do need a reputation buttonkalm wrote:My job isn't to educate you. My job is to spit ball with half truths and hope someone more eloquent can come along and make 'em stick.OL FU wrote:
Maybe you can educate me, but most SS privatization plans are based on the tax payer having the market risk in the privitized portion. The problem here is that the states have a defined payout which far exceeds their ability to pay so they were reliant on the market to cover there asses. When the market tanked, their asses were exposed.
But I wait to be educated.
Um, since when have federal revenues decreased from year to year?TwinTownBisonFan wrote:it's pathetic... the fault for this shit is being passed on to public servants whose only crime was, for the most part - working for below market wages for their skills for their careers. now THEY are being vilified, instead of the candy ass politicians who RAIDED THEIR PENSION FUNDS RATHER THAN MAKE HARD DECISIONS ABOUT TAXING AND SPENDING.OL FU wrote:
Maybe you can educate me, but most SS privatization plans are based on the tax payer having the market risk in the privitized portion. The problem here is that the states have a defined payout which far exceeds their ability to pay so they were reliant on the market to cover there asses. When the market tanked, their asses were exposed.
But I wait to be educated.
this is fucking retarded... the ultimate in passing the buck. We're reaching the logical conclusion of Republican tax and spend policies... decrease revenues and never really cut spending - they call it starving the beast - and now we're bankrupt... pathetic.
We're crazy enough to put up with all the red tape created by legislatures across the country which are composed of people elected by the people to create the programs that the people want to benefit from, and then deal with the people when they get upset over the amount of time it takes. Only a crazy person would do that.kalm wrote:How dare those unionized government workers demand to be able to retire with dignity. Next thing you know their gonna ask for a 40 hour work week and overtime. What in the hell is wrong with them?
Ooooooooooohhhhhhhhhh, I see. The pensions were dependant upon the federal government paying for them. That was intelligent.CitadelGrad wrote:Um, since when have federal revenues decreased from year to year?TwinTownBisonFan wrote:
it's pathetic... the fault for this **** is being passed on to public servants whose only crime was, for the most part - working for below market wages for their skills for their careers. now THEY are being vilified, instead of the candy ass politicians who RAIDED THEIR PENSION FUNDS RATHER THAN MAKE HARD DECISIONS ABOUT TAXING AND SPENDING.
this is **** retarded... the ultimate in passing the buck. We're reaching the logical conclusion of Republican tax and spend policies... decrease revenues and never really cut spending - they call it starving the beast - and now we're bankrupt... pathetic.
As a retired public school teacher, Robert C. Hill's $143,140 annual pension sure buys him enough dignity. Maybe even enough for 4 or more people.kalm wrote:How dare those unionized government workers demand to be able to retire with dignity. Next thing you know their gonna ask for a 40 hour work week and overtime. What in the hell is wrong with them?
If that's true I might be switching sides in this debate.Baldy wrote:As a retired public school teacher, Robert C. Hill's $143,140 annual pension sure buys him enough dignity. Maybe even enough for 4 or more people.kalm wrote:How dare those unionized government workers demand to be able to retire with dignity. Next thing you know their gonna ask for a 40 hour work week and overtime. What in the hell is wrong with them?
http://illinoisreview.typepad.com/illin ... 50381a970b
Probably more true than not. My wife is a public school teacher and with the 2.5 multiplier in PA (voted in during an overnight session early in the decade) she'll be able to retire at 61 with full pay and benefits. Considering the top of the scale is already just over $100k+ today, I'm sure we'll be living with plenty of dignity in our retirement as well as money. And that's before we even get to her 403b or my 401k. Yup, I'll be complicit in milking the taxpayers someday.kalm wrote:If that's true I might be switching sides in this debate.Baldy wrote: As a retired public school teacher, Robert C. Hill's $143,140 annual pension sure buys him enough dignity. Maybe even enough for 4 or more people.
http://illinoisreview.typepad.com/illin ... 50381a970b
Bastard!GannonFan wrote:Probably more true than not. My wife is a public school teacher and with the 2.5 multiplier in PA (voted in during an overnight session early in the decade) she'll be able to retire at 61 with full pay and benefits. Considering the top of the scale is already just over $100k+ today, I'm sure we'll be living with plenty of dignity in our retirement as well as money. And that's before we even get to her 403b or my 401k. Yup, I'll be complicit in milking the taxpayers someday.kalm wrote:
If that's true I might be switching sides in this debate.
The Republicans in the House will lose their jobs if they bail out California, Illinois and New York public employee unions.danefan wrote:Read this this morning.
God help us if this happens.
The muni-bond market would collapse and a huge portion of this country's retirement savings would be obliterated.
Thank god for political deadlock. I cannot imagine the Republicans in the House will let this happen.
The responsibility belongs just as much with the corrupt unions who bribed the politicians.TwinTownBisonFan wrote:...
it's pathetic... the fault for this **** is being passed on to public servants whose only crime was, for the most part - working for below market wages for their skills for their careers. now THEY are being vilified, instead of the candy ass politicians who RAIDED THEIR PENSION FUNDS RATHER THAN MAKE HARD DECISIONS ABOUT TAXING AND SPENDING.
this is **** retarded... the ultimate in passing the buck. We're reaching the logical conclusion of Republican tax and spend policies... decrease revenues and never really cut spending - they call it starving the beast - and now we're bankrupt... pathetic.