Month: March 2008

Local and State Governments Call for Changes in Bond Rating System

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One of the peculiarities of bond rating is that state and local bonds are typically rated much lower for a given level of risk than those of private entities, which requires that they purchase bond insurance.

This is the still lucrative core of the now almost insolvent monoline insurers business.

A number of public officials have expressed their concerns to the rating agencies:

On March 4, Bill Lockyer, the treasurer of California, sent a five-page letter to Moody’s Investors Service, Standard & Poor’s Corp. and Fitch Ratings asking for justice.

`”State and local governments almost never default on the bonds they issue,” the letter says. “The safety of municipal bonds is grounded in a fundamental fact: a city or state simply is not going to go out of business during the life of its bond issue.”

The letter was signed by 14 other state and local officials, including Michael Murphy of Washington, Michael Fitzgerald of Iowa and Patrick Born, the chief financial officer of Minneapolis. I mention these three in particular because they are public finance veterans who really understand the business.

Maybe every one shouldn’t be rated AAA, the letter asserts. Just most of them.

They are absolutely right.

As the system stands now, most state and local governments have to buy insurance in order to get an AAA rating, but the risk of default is minuscule compared to commercial AAA bonds.

Austan Goolsbee Blowback in Canada

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I think that it’s increasingly clear that the leak of this story was orchestrated by Steven Harper and his bully boys, in this case Michael Wilson, ambassador to the US, though the underlying facts, that Goolsbee said it’s just politics, appear to be true.

The fact is that Harper is in charge of an unpopular minority government, and having an election in parallel with the US would probably cut against them, so now is a good time for the opposition to get a no-confidence vote.

The Canadian people are almost as sick of Bush as the American people, and by holding elections near the same time, it makes the choice clear.

Any followers of Canadian politics want to explain why the opposition is not trying to get snap elections?

Bush Political HUD Staffers Too Stupid for Email

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You may have heard of HUD Secretary Alphonso Jackson.

He was the one who said in a public speech, that he would not make grants to Democrats.

Well, it now appears that he cut off funding to the Philadelphia Housing Authority because they refused to give a vacant lot to a friend of his.

The housing authority sued, and their email records have been introduced into evidence, and it’s ugly*.

After Philadelphia’s housing director refused a demand by President Bush’s housing secretary to transfer a piece of city property to a business friend, two top political appointees at the department exchanged e-mails discussing the pain they could cause the Philadelphia director.

“Would you like me to make his life less happy? If so, how?” Orlando J. Cabrera, then-assistant secretary at the U.S. Department of Housing and Urban Development, wrote about Philadelphia housing director Carl R. Greene.

“Take away all of his Federal dollars?” responded Kim Kendrick, an assistant secretary who oversaw accessible housing. She typed symbols for a smiley-face, “:-D,” at the end of her January 2007 note.

Cabrera wrote back a few minutes later: “Let me look into that possibility.”

*I don’t just mean ugly, I mean ugly even by the standards of the Bush administration, which is makes this AMC Pacer ugly.

Merrill Lynch Bear Says this Will be Ugly

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A prominent bear, Merril Lynch economist David Rosenberg, is saying that will be the worst one since the 1970s.

I think that it will be worse, because we are in a debtor economy, and bills will be coming due sooner, rather than later.

In fact, I think that some of the indicators may show it to be more profound than that of the 1930s.

Here’s why:

  • In the 1930s, we were a net exporter of oil, now we are a net importer of oil.
  • In the 1930s, the rest of the industrialized world was still suffering from the shocks of WWI, which had left the US largely unscathed.
  • The US was running a trade surplus.
  • The Federal government was running a budget surplus.
  • The amount of leverage and risk are far higher now than in 1930.
  • The US industrial base has been decimated over the past 35 years.
  • Consumer savings is non-existent.
  • We have crushing defense expenditures.
  • The dollar is overvalued, meaning that we will be experiencing a foreign exchange driven inflation.

Note, however, that but I’m an engineer, not an economist, dammit*!

*I love it when I get to go all Doctor McCoy!!!

Really, Really, Really Bad Ideas, Maryland Edition

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The Legislature is looking at changing the law to allow for profit debt counseling services to operate in MD.

The change is being driven by Columbia based AscendOne Corp.:

AscendOne’s business practices are being reviewed by attorneys general in Maryland and several states, government sources briefed on the investigations said. The sources asked to remain anonymous because the investigations are ongoing.

We have an industry with a reputation for dishonesty and fraud. One where the business is exploding because of the requirement for credit counseling under the new clusterf*** US bankruptcy law, so at the behest of one of the dubious actors in this dishonest industry, the legislature is looking at making things even worse.

Sounds like business as usual in Annapolis.

When the Financial Times of London Sounds Like the Workers Daily World, The Times are a Changing

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London has long had a policy of allowing rich foreigners to live there tax free.

FT columnist Martin Wolf looks at proposals to eliminate this immoral give away to the rich, and finds that too many people in the UK subscribe to the Leona Helmsley way of doing thing.

We live in strange times, as evidenced by his concluding paragraph:

Yet the experience also shows that the case for a simple, neutral and stable fiscal system, which taxes the worldwide incomes of all long-stay residents on the basis of ability to pay, is overwhelming. As soon as one departs from that principle one enters in a maze of special pleading or invidious distinctions, in which failed ideas of industrial policy – subsidising winners through the tax system – return to the fore. If the application of that great principle means some rich people leave the country, so be it.

(Emphasis mine)

Unexplained Testicle Sighting Among Congressional Democrats

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The house is completely defying Bush on the FISA wiretap update proposal.

Instead of immunity, they are putting forward giving, “the federal courts special authorization to hear classified evidence and decide whether the phone companies should be held liable.” Meaning that their answer to Bush’s demand for a coverup is even more judicial overview with regard to spying on Americans.

Word that I’ve read is that the freshman Democrats are very opposed to immunity, and my not so educated guess is that when they went on recess, that the reps got hundreds, if not thousands, of “attaboys” from theid constituents.

The Bush administration hates the bill, and the response for John Conyers and Sylvestre Reyes is brutal:

The Administration, which has refused to even attend negotiation sessions between the House and the Senate, has now apparently launched another round of scare tactics and falsehoods. The American people expect government officials to wrestle with these difficult issues and reach common sense solutions that protect Americans from terrorism and preserve our civil liberties. Unfortunately, the President’s advisors seem more inclined to issue ‘my way or the highway’ press releases concerning a bill the Administration hasn’t even read. The Congress will continue to give this issue the careful consideration it deserves and we hope the Administration will change course and join us in this effort.

I don’t know who put some steel in their spine, but it feels good.

FWIW, Patrick Leahy, chairman of the Senate Judiciary Committee, who got bunked by Reid on immunity, likes the House bill too.

So does the EFF.

We Are Going to Bomb Iran

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Admiral William J. Fallon, the head of Centcom, has been forced out by the Bush and His Evil Minions&trade.

This means we will be seeing air strikes on Iran. My guess would be in September, so as to influence the elections. Wag the dog, baby.

My suggestion for the Democratic candidates, they should make it clear that the AUMF against Iraq does not cover Iran, and as such any order to attack Iran is illegal, even if the order comes from the President.

Furthermore, it should be made clear that there would be courts martial if those illegal orders were executed.

Economics Update

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Oil has hit another new high, driven largely by the Dollar hitting a new low, though there has been some recovery since the Federal Reserve has agreed to issue at least another $200 billion, this time using mortgage backed securities, aka “Worthless Garbage”, as collateral.

I’m not sure that this will make a difference in the strength of the Dollar. It now appears that the United Arab Emirates is seriously considering dumping their dollar peg, which is clearly a step towards Euro denominated oil.

In today’s episode of really bad policy, it appears that Congress is moving toward privatizing profits and socializing losses in real estate, by expanding the loans that FHA insurance covers. Yep, this will work so well, like it did for MBIA and Ambac.

In more general investment news, Bear Stearns is tanking on concerns that it lacks sufficient liquidity to cover potential margin calls. It probably does not help that Moody’s has downgraded Bear Stearns Alt-A mortgage backed securities, more than half of those issued from 2005 through 2007. Ouch.

Subprime’s favorite whipping boy, Countrywide is going down like Elliot Spitzer’s hooker, the Bank of America offer is now a 32% premium, as versus a 9% premium 2 weeks ago, so people are thinking that BoA will just walk away.

In the world of Real Estate Investment Trusts (REITs), we have had downgraded price targets on three Mortgage REITs.

What took them so long.

Finally, in things that make you say, Whiskey Tango Foxtrot, we have a report that, 20% of Silicon Valley startups cannot get to their working cash, because they invested it in Auction Rate Securities to get better rates of return, and that market is completely frozen.

US Poised to F*&^ It Up Yet Again With DPRK

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So, the US is now demanding some sort of “clear signal” in order for negotiations to proceed.

The problem here is that there are people in political positions, who I won’t name for fear that they will get drunk and shoot me in the face, who believe that negotiations of any sort are a victory for North Korea, and a defeat for the US, so the directives come down to keep erecting road blocks.

The North Koreans are not crazy. They are secretive, in many ways criminal, largely uncaring about the wellbeing of their population, and paranoid, but they are not crazy.

They honestly believe, and have believed for the last 50 years, that the US is planning a sneak attack against them in the hope of decapitating their regime and taking over their country.

Every time there is progress in discussions, and then the US creates another stupid hoop to jump through, it reinforces that belief.

This is well and truly stupid.