Blogs

The Approaching Muni Bond Implosion

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New York Lieutenant Governor Richard Ravitch made a statement last week that should have gotten headlines, but didn't.

“I believe that the states across the United States will face deficits a year after stimulus ends of $300 billion to $500 billion a year,” Ravitch told about 200 people gathered at New York University’s Robert F. Wagner Graduate School of Public Service. “You’re going to begin to see cracks in the municipal bond market well before then, because that’s an inexorable casualty of unfundable state deficits.”

To put this into perspective, the total state budgets for 2010 was about $1.4 Trillion. If his predictions are anywhere close to being true then the budget problems of the states are essentially unfixable.

Hearing on Too Big to Fail Bill

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The House Financial Services Committee held a hearing, Systemic Regulation, Prudential Matters, Resolution Authority and Securitization last Thursday.

What was rare is almost all of the experts said basically the same thing, the too big to fail bill is TARP on Steroids, a disaster, making TARP permanent de facto.

Congressman Brad Sherman sums it up:

 

Friday Movie Night - Close to Home

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It's Friday Night! Party Time!   Time to relax, put your feet up on the couch, lay back, and watch some detailed videos on economic policy!

 

I debated about showing this Frontline video because it is personal stories. But the film came back in my mind over the week. Some of the images of perfectly capable Americans, people who played by all of the rules, now living on the tail end of the American dream, brought to you by Visa and Mastercard, the amazing number of people over 40 who cannot get a job, the fear, the terror, the broken spirits, haunted me over the week. This same story is being played out in every coffee shop or beauty salon in America. The only thing that bothers me is the fear. People need to turn that fear into anger, get active and demand a good job and their American dream back.

 

CIT goes into a pre-packaged bankruptcy.

The WSJ has a story up (HT to Calculated Risk) about the impending bankruptcy at CIT.

The company plans to file for bankruptcy in New York as soon as Sunday night or early Monday, said people familiar with the matter. CIT is poised to enter bankruptcy with enough creditor support to approve its reorganization plan and shorten its stay in Chapter 11 ...

... CIT asked bondholders to vote on a prepackaged bankruptcy plan, which would give most bondholders new debt it values at 70 cents on the dollar, and all the equity in a restructured company.

On the up side, it great that this thing is going into a prepackaged bankruptcy. We've seen this at GM and Chrysler. It allows them to emerge stronger. So in the long term the economy will be better off for this, but.....

As Keynes said, in the long term we are all dead.

The GDP of Stimulus

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Now that the Great Recession has been declared dead and gone by everyone who failed to see the possibility of it happening in the first place, it is important to examine the reasons for its demise.

The White House has been busy declaring that its Stimulus policies have created or saved 640,000 jobs. We should note that the White House originally claimed credit for 1 million jobs, and only revised them down after realizing that they are spending $234,000 for each job saved. More revisions are sure to come.
It's also important to note that the job number is based on mathematical calculations and is impossible to prove.

One thing that can't be denied is that the stimulus did have an effect on the economy. It's this impact that needs to be examined further.

New Agenda for America: Income Inequality Threatens America's Basic Economic and Political Systems

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newdeallogo

This post originally appeared on the New Deal 2.0 Blog as part of the Roosevelt Institute's "New Agenda for America."

Today, we have the highest level of income inequality in our nation's recorded history. We must address the structural flaws in our economy that created, and continue to widen, this divide. History teaches that extreme inequality leads to political instability. We cannot assume that we are immune.

In President Obama's words, the middle class is experiencing "the American Dream in reverse." Rising long-term joblessness and the possibility of 13 million foreclosures (more than one in every four American mortgages) create the potential for the former middle class to move from frustration to anger -- an anger sparked by reduced circumstances and the belief that they have been treated unfairly.

With each job loss or foreclosure, another family -- now on a down-ward spiral -- potentially loses its faith in our basic economic system and our basic system of governance. America's ongoing vitality requires that people trust that these systems work, and that our democracy is self-correcting. With rising income inequality, this trust is now at risk.

America has never been a nation of haves and have nots. If the gulf widens, it's hard to imagine that our future will be marked either by a healthy economy or a healthy democracy.

Too Big to Fail Bill

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The House Financial Services Committee, along with the Treasury Department has proposed a new too big to fail piece of legislation.

The bill is titled The Financial Stability Improvement Act of 2009 and the bill text is here.

The bill creates an inter-agency regulatory agency called the Financial Services Oversight Council.

The bill appears to be once again, making the Federal Reserve super regulator but with wording to hide this fact.

Removes the Gramm-Leach-Bliley Act’s restraints on the Fed’s authority over companies subject to consolidated regulation and provides specific authority to the Fed and other federal financial agencies to regulate for financial stability purposes and quickly address potential problems.

The bill also seems to be not reinstating Glass-Steagall, instead putting some watered down restrictions, but only going forward. Seemingly existing institutions will not be broken up.

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