Congressional Republicans will block any inclusion of Build America Bonds.
“We have a very firm line on BABs -- we are not going to allow them to be included," a congressional Republican aide said.
I wrote a few articles over the past few months on BABs. My articles always trashed the program. It is just a subsidy that hides weakness. I hate things that go in that direction.
I did all that writing because I was absolutely convinced that BABs would be extended. There were dozens of lobbyists all over this. Wall Street’s white spats crowd spent big bucks to get this kicked down the road. Big states like California, New York, Texas and Illinois were pushing their legislators hard.
It wasn’t the political muscle that lead me to believe that BABs would be extended. I saw it as a critical component in municipal finance. If it was eliminated I thought we could quickly evolve into a crisis with certain states debt. I was by no means alone in that observation. This comment from the rag for the muni market, The Bond Buyer:
If the Build America Bond program expires at the end of this year, long-term tax-exempt bonds could lose their latest pillar of support.
Parts of me want to be proved right about the significance of this development. I am one of those who thinks there is too much debt creation at the governmental level. Well, it just got more difficult for munis to borrow. By itself, that will curb debt creation.
There is another part of me that is saying “gulp”. By definition, you do not see a black swan in advance. I did not see this at all. I don’t count, but the market does. If you follow markets you now have to have a screen for muni pricing. As this sorts out over the next 60 to 90 days the muni market might drive the global markets.
I’m thinking to myself, “How could they have blundered on this?” They extend the Bush cuts for everyone. They tack on another 120b of deficit spending with a cut in SS taxes. And they throw in another year of unemployment checks. They threw the sink at the economy at the sake of the deficit. But they failed to pass BABs? Knuckle heads. If there is a hiccup that takes a big state out of the market for a spell it will trump the economic benefits of all the new deficit spending. It might do it a few times over.
Links to my prior posts on BABs:
Here, here and here
Posts
the collapse of the state budgets is the single most significant downward pressure on the domestic economy. It seems the purpose of the republican agenda is truly to "drown government in the bathtub" with all the unintended or expected consequences that this will bring.
ReplyDeleteSo you like the BAB's or you don't? You seem to be quibbling like a politician who holds his nose and votes for something they hate. This is why subsidies never end -- returning to market forces and reality can be too tough for many to bear.
ReplyDeleteBAB was a TEMPORARY program. Everyone knew that. Now it is sunsetting.
ReplyDeleteThis is what is wrong with America. Government sets up a program to deal with a specific problem, in this case, the freezing of credit markets and now it has a constituency that wants to make it permanent.
Be careful of what you wish for, eh?
ReplyDelete????
We've got to cleanse this mess. Yes, it will be ugly, but it must be done. More borrowing is not the answer. There is no easy way down, so we might as well let the states and municipalities default and share some of the burden with bond holders and employees. Up to now only the taxpayers and service recipients have felt any pain.
ReplyDeleteI can only echo the second comment.
ReplyDeleteThis is going to sound weird, but is it possible that Obama and McConnell simply forgot to talk about BAB when they were working out their deal? That's the problem with letting this stuff go right up to the deadline--things start to slip through the cracks. . .
ReplyDeleteI see that the Senate Dems have now said they want BAB included in a deal. . .
Mr Krasting... good riddance to the BAB program. You are being very deceitful suggesting that a failure to extend a TEMPORARY program is going to cause muni bond issues
ReplyDeleteCalifornia has been bankrupt for years if not decades. Schwarzenegger got in a special election because the state was already bankrupt.
Extending BAB would be fraud. Its high time the politicians make some tough choices that they have avoided for decades.
If some dim-witted muni bond traders get caught in the middle... too bad for them. Competent traders don't buy bonds in bankrupt entities.
Mutual fund shareholders have every right to sue any trader and any asset management company that bought California bonds (or any other state).
It is shameful for you to claim this problem is because the BAB program was or was not extended. You know that has nothing to do with the issue, or you never should have been in finance.
Enough already. There is always an excuse to postpone dealing with the spending habits of corrupt politicians. The government needs to live within its means **RIGHT NOW**.
If that means CA, NJ, etc default... then they default. Better now than two years and several hundred billion more debt later
Anyone who buys bonds (BAB or otherwise) from a defunct state should be held personally liable for breach of fiduciary duty
ReplyDeleteUntil the states cut spending, they are not viable economic entities. These are not bonds, as there is no hope for timely repayment, or repayment ever.
This was arguably Mr Krasting's worst post in the history of his blog
Shame on all of you (especially the blog author) for trying to portray this as a partisan issue
ReplyDeleteNeither Gray Davis nor Schwarzenegger has managed to control California's spending.
Neither Gray Davis nor Schwarzenegger has managed to control California's spending."
ReplyDeleteAnd triple shame on anyone trying to portray this as a "national" or "international" problem.
No, this is purely a state and local matter for California to sort out. Subsidizing it is certainly no responsibility for people in places like Kansas or South Dakota.
As Mr. Krasting is discovering to his likely discomfort, the destruction of the American economy is not a bug in the Republican plan.
ReplyDeleteIt's a feature.
Many of the posters here make it plain that they do not believe in a United States, but in a series of balkanized corporate fiefdoms with no obligation to uphold even the common defense, much less the common good.
Such is the moral morass that has oozed from elevating free markets from a mechanism into the worship of a god. It's not workable, of course. Most of the red states accept more dollars from the federal government than they pay out in taxes. The real subsidy flows from states like California to states like Kansas and South Dakota. But even greater than the federal subsidy is the standard of living Kansas and South Dakota have enjoyed from the technological advances that are only possible from states like California. Take away the contributions of states like California and Kansas becomes Guatemala, and South Dakota becomes Honduras.
People who say "it will be ugly" do not know what ugly looks like. They imagine they will be immune to suffering its consequences. But if the United States collapses, none of us, no matter how powerful and wealthy will be immune. The people who caused a small crisis--a few million mortgages that should never have been written-- to explode into a national conflagration will be left with nothing except the guilt and shame that they were the only generation of American leaders to have abjectly failed, to have slain the golden goose that could have nurtured their children and grandchildren. They will be remembered with curses, if at all.
But that, of course, will not help the rest of us.
--Charles
Someone with the handle "phoenix WOMAN" and signing off as "Charles" apparently thinks we can solve the problem of too much debt with even more debt.
ReplyDeleteThen she/he insults us with more partisan clap trap. This is not about evil democrats or evil republicans. It is about living within our means
No one wants to buy garbage munis anymore, because the states can't control spending. Repackaging the garbage as CDOs or BABs or any other three letters will not change the fact that government spending is out of control
Please figure out what gender you are before you give us any more financial advice
There is absolutely no doubt this is sticking the Democratic pigs in the right place. Just listen these swine squeal!
ReplyDeleteI just hope the GOP finally has finally developed the backbone to stay the course. What they have typically done in the past is do a deal across the aisle and betray their base in the process.
And Bruce, you do such good posts on other topics. How about saving the Chicken Little? The world won't end because a bunch of dirtbag politicos in Sacramento & Springfield have to tell their dirtbag government union backers and construction contractors their six figure packages are going on an involuntary fiscal Weight Watchers plan.
The fastest way to bring on a "Black Swan" would be to create market certainty that Deep Blue state governments can spend without limitation because they're backstopped by the feds and federal taxation of more responsible states.
Anon @ 12:59p ...
ReplyDeleteThis is not a partisan issue, please stop pretending otherwise. Neither party has shown any spending control; neither party has shown any leadership; neither party has anything to crow about.
Government spending is going to destroy this country. Fraudulently claiming that issuing some bonds (to avoid making difficult choices) is cowardly. But calling the democrats pigs? How is that helping?
Everyone's children (democrats and republicans alike) will suffer because the current "leaders" (both parties) are weak and unworthy.
Please skip the partisan foolishness and focus on the actual problems. Spending must be cut drastically -- and then restricted from growing faster than the economy.
After that, the political class can resume bickering over guns and butter. Right now, the country can't afford either
Thanks for all these thoughts. "Enough Already" says it very well:
ReplyDelete"Everyone's children (democrats and republicans alike) will suffer because the current "leaders" (both parties) are weak and unworthy."
As for this being my worst post ever, well I'm sorry for that. I did play on both sides of the aisle. Funny thing? This piece of crap is one of my best read articles. Go figure....
Mr Krasting, You wrote:
ReplyDelete"I saw it as a critical component in municipal finance. If it was eliminated I thought we could quickly evolve into a crisis with certain states debt."
Claiming that a program labeled "TEMPORARY" is a critical component of a market is a little absurd. BAB was sold as a TEMPORARY stimulus program when the sky was supposedly falling. It was never a permanent part of anything -- and thus by definition cannot be called a "critical component".
Then you went off the deep end and claimed the end of this TEMPORARY program would "evolve into a crisis". This is playing fast and loose with any notion of cause and effect.
The effected states were bankrupt a decade ago. Excessive, out of control spending is what is "evolving into a crisis". Not the beginning or end of a TEMPORARY issuance program.
You kept implying, over and over, that the scheduled end of a TEMPORARY program was somehow a vast Republican conspiracy. That made your post into partisan garbage -- your worst post ever.
You neglected to mention that excessive spending, by both parties, is the actual cause of the impending crisis.
As long as "we the people" are bickering over partisan nonsense, we aren't demanding that leaders start to make difficult choices. Shame on you for allowing Congress to manipulate you.
As long as voters are flinging mud at the evil other party -- we don't have to look at our kids and visualize them in poverty because of debts that we are choosing to impose on them
That makes this your worst post ever
Everybody in comments is doing all this tough talk about how we have to live within our means. It sounds like everybody sees it as the sort of belt-tightening one does in a household.
ReplyDeleteI just have a bad feeling that it doesn't work that way when one is speaking of a nation.