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In Muni-Bond Ills, Danger and Hope
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Jay Powell, a former US Treasury official, now a scholar at the Bipartisan Policy Center, says the fears of budget problems in US states are survivable, even though they will be difficult and painful. He does not see widespread defaults, the way Meredith Whitney has predicted. Kenneth Rogoff of Harvard University, says a major default would cause serious macro-economic dislocations. It would have impact beyond the US, in the European economies with serious budget problems such as Greece, Portugal and Spain. Analysts cite the following reasons why a widespread debt default by states and local governments is unlikely. Municipal bonds are held mostly by individuals, who own about two thirds of US municipal bonds, directly or through mutual funds. Most state and local government debt is long term, and does not rely on short term borrowing the way a Lehman Brothers did in the recent financial crisis. The states can raise revenues, as Illinois did recently. With the economy improving state tax revenues were up 6.9% in the fourth quarter of 2010, compared to a year earlier, according to preliminary data from the Nelson Rockefeller Institute of Government, Albany, New York. That said, the following reasons show that life will be difficult and painful for states and local governments. State budget gaps total at least $125 billion, as they look to the coming fiscal year, according to the Center on Budget and Policy Priorities. And no federal help is in the works, as it was in 2009. Far less of newly issued muni-bonds are insured today - 6% compared to 57% in 2005- according to the Bank of America Merrill Lynch. Insurers are still recovering from losses in the recent financial crisis. A massive supply of new bonds has depressed the market just as Dec 31 expiration of a federal program, Build America Bonds, which provided help to states that were borrowing. Investors withdrew $23.6 billion from muni-bonds mutual funds since November, 2010. Moody's Investor's service has listed the states that will need to issue bonds to fund current operations. California will borrow billions to cover cash flow needs, and Illinois is considering an $8.75 billion 'debt restructuring bond' to pay past due bills, and a $3.75 billon bond for contributions to its pension system. Because banks have only 1.3% of assets in muni-bonds any defaults will not affect their ability to lend. But the impact will be felt in the US economy and overseas. In the event there was a default, some analysts believe the federal government would find it hard to say no when the federal government said yes to AIG.
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Senator Cronyn raises the question about developing options for restructuring of finances if states have no other option. Budget deficits of many states in the US are expected to be severe enough to require some mechanism for resolution.
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The Weak Get Weaker as Muni Bonds Are Sold Off
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Recession-bruised states' revenue sank 30 percent in 2009, Census Bureau reports
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New York Times 01/06/2011
Bond Buyers' Eyes Are on Illinois
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Sales of Muni Bonds Sink to 10-Year Low
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Meredith Whitneyâs Muni Bond Prediction Draws Scrutiny
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In Muni-Bond Ills, Danger and Hope
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Mutual Funds' Muni-Debt Prices Are Questioned
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California Budget Crisis
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California Budget Plan Incorporates Governor's Goals
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State budgets in the U.S. as the economic crisis hits states hard in 2009.
07/03/2009
California is down to issuing warrants or i.o.u.'s to pay taxpayers, local governments and vendors. Other state governments face difficult situations.
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State, Local Tax Revenues Decline 7%
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State and local government debt that could create a financial crisis in the USA
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Mounting Debts by States Stoke Fears of Crisis
New York Times 12/04/2010
Mangano Lowers Taxes but Leaves Nassau County in a Fiscal Crisis
New York Times 12/10/2010
Banks Look to Profit on Muni-Bond Fears
Wall Street Journal 12/21/2010
New York Times 01/06/2011
Bond Buyers' Eyes Are on Illinois
Wall Street Journal 01/07/2011
Reflation Takes Credit for Muni Rout
Wall Street Journal 01/21/2011
Credit Default Swaps (CDS) on the debt of U.S. cities and states
12/21/2010
CDS on municipal debt. Efforts by investment banks to sell derivatives on municipal debt.
Grouped Articles
Banks Look to Profit on Muni-Bond Fears
Wall Street Journal 12/21/2010
Pained Muni Investors Cry Uncle
Wall Street Journal 12/22/2010
Recession-bruised states' revenue sank 30 percent in 2009, Census Bureau reports
Washington Post 01/05/2011
Bond Buyers' Eyes Are on Illinois
Wall Street Journal 01/07/2011
Meredith Whitneyâs Muni Bond Prediction Draws Scrutiny
New York Times 02/07/2011
In Muni-Bond Ills, Danger and Hope
Wall Street Journal 02/09/2011
Cuts in state budgets in the U.S. after Republicans take over governorships and legislatures in many states.
01/05/2011
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Recession-bruised states' revenue sank 30 percent in 2009, Census Bureau reports
Washington Post 01/05/2011
New York Times 01/06/2011
Florida Governor Hits Road to Sell His Budget Overhaul
Wall Street Journal 02/03/2011
Wall Street Journal 02/07/2011
New York Times 02/07/2011
In Muni-Bond Ills, Danger and Hope
Wall Street Journal 02/09/2011
Grossly underfunded state pension funds in the U.S.
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Pension Pinch Busts City Budgets
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New York's 2011-2013 budgets under Governor Cuomo
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Cuomoâs Budget Cuts Year-to-Year Spending
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Cuomo Maps Cuts to Balance New York Budget
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In Muni-Bond Ills, Danger and Hope
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Cuomo and Lawmakers Reach Deal on Budget
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Muni-Bond Default Estimates of $100 Billion
02/09/2011
Estimates on muni-bonds default range from the high side presented by Meredith Whitney to the more moderate estimate of $100 billion over several years by Roubini.
Linked Articles
Muni Default Estimate: $100 Billion
Wall Street Journal 03/02/2011
In Muni-Bond Ills, Danger and Hope
Wall Street Journal 02/09/2011
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