Muni BOMB!!!!

Tuesday, May 26, 2009 , 1 Comments

Hate to say we told you so...

Via NYT:

State and local governments are asking Washington to give them something that banks are trying to get rid of: federal bailout money.

California is asking that money from the Treasury’s TARP, the Troubled Asset Relief Program, be used to help back more than $13 billion in short-term borrowings. Members of Congress and several municipalities want bailout money to be used to cover more than $1 billion in losses from investments by municipalities in debt issued by Lehman Brothers, the investment bank that went bust.

And Representative Barney Frank, chairman of the House Financial Services Committee, is drafting legislation that would have the Federal Reserve, and potentially the Treasury’s bailout money as well, stand behind floating-rate municipal bonds — a $400 billion market that provides short-term financing to municipalities, but which has been largely frozen in the current credit crisis.

Another measure drafted by Mr. Frank, Democrat of Massachusetts, would create a public finance office within the Treasury Department to reinsure $50 billion in municipal bonds. This proposal comes as downgrades of municipal bond insurance companies have made it more difficult and costly for state and local governments to issue bonds. [my emphasis]

All of the proposals are meant to help struggling state and local governments that are facing a cash-flow squeeze. The economic downturn has eaten into their tax bases as local businesses shut, houses are lost to foreclosure and there is a resistance to raising taxes. The risk to the federal government is that it could lose money if things get worse for municipalities and states. Although backing debt with a guarantee does not require an immediate outlay of funds, the federal government could have to cover losses if there are defaults — which could be substantial if the economy weakens or states and municipalities cannot bring their budget deficits under control. Nonetheless, these overtures by state and local officials reflect a sense — perhaps just a hope — that municipalities suffering from a downturn in revenues and creditworthiness may find some relief in Washington beyond the stimulus money the federal government already is spending.

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.


I saw the giant bottle labeled "NRA" (not the national rifle association):
National Recovery Administration (NRA). The NRA was perhaps one of the most sweeping and controversial of the early New Deal programs. Its purposes were twofold: first, to stabilize business with codes of "fair" competitive practice and, second, to generate more purchasing power by providing jobs, defining labor standards, and raising wages. The NRA also reflected trade union hopes for protection of basic hour and wage standards and liberal hopes for comprehensive planning. General Hugh S. Johnson headed the NRA and eventually proposed a "blanket code" pledging employers generally to observe the same labor standards. By mid-July 1933 he launched a crusade to whip up popular support for the NRA and its symbol of compliance, the "Blue Eagle," with the motto "We do our part." The eagle, which had been modeled on an Indian thunderbird, was displayed in windows and stamped on products to show a business's compliance. There was even a parade down New York's Fifth Avenue with over a quarter of a million marchers in September to show support for the NRA and the "Blue Eagle."

While developing programs to help America emerge from the Great Depression, Roosevelt also needed to calm the fears and restore the confidence of Americans and to gain their support for the programs of the New Deal, including the NRA. One of the ways FDR chose to accomplish this was through the radio, the most direct means of access to the American people. During the 1930s almost every home had a radio, and families typically spent several hours a day gathered together, listening to their favorite programs. Roosevelt called his radio talks about issues of public concern "Fireside Chats." Informal and relaxed, the talks made Americans feel as if President Roosevelt was talking directly to them. Roosevelt continued to use fireside chats throughout his presidency to address the fears and concerns of the American people as well as to inform them of the positions and actions taken by the U.S. government.

The topic of this lesson's featured document, Fireside Chat on the Purposes and Foundations of the Recovery Program, was the NRA. Although this radio message, given on July 24, 1933, addressed some of the problems and issues of the Great Depression, it also focused on what industry, employers, and workers could do to bring about economic recovery.

For a time, the NRA worked. It gave an air of confidence to the American people to overcome the fears of the Depression and the downward turn of wages and prices. However, once recovery began, hostility among businessmen grew with the daily annoyances of code enforcement. Within two years the NRA had developed many critics and by May 1935 was struck down by the Supreme Court as unconstitutional. The experiment of the NRA was generally put down as a failure. Nevertheless, the codes had set new standards for business and workers such as the 40-hour week and the end of child labor. The NRA also helped the growth of unions with the endorsement of collective bargaining.