Comments on: What are the chances of muni doomsday? http://blogs.reuters.com/felix-salmon/2010/12/22/what-are-the-chances-of-muni-doomsday/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: Billie Yglesias http://blogs.reuters.com/felix-salmon/2010/12/22/what-are-the-chances-of-muni-doomsday/comment-page-1/#comment-55598 Sun, 19 Oct 2014 15:52:19 +0000 http://blogs.reuters.com/felix-salmon/?p=6691#comment-55598 This is one awesome article post.Really thank you! Will read on…

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By: Jewell Drouse http://blogs.reuters.com/felix-salmon/2010/12/22/what-are-the-chances-of-muni-doomsday/comment-page-1/#comment-54469 Thu, 09 Oct 2014 20:21:14 +0000 http://blogs.reuters.com/felix-salmon/?p=6691#comment-54469 whoah this blog is great i love studying your articles. Keep up the good work! You realize, many people are looking round for this information, you could help them greatly.

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By: traducator daneza http://blogs.reuters.com/felix-salmon/2010/12/22/what-are-the-chances-of-muni-doomsday/comment-page-1/#comment-53399 Mon, 29 Sep 2014 13:53:39 +0000 http://blogs.reuters.com/felix-salmon/?p=6691#comment-53399 Do check my web site as well. It is the best advice available on the unannounced Marq by Assetz group in Bangalore. You can visit with my site to also learn about any of the newest endeavors in Bangalore.

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By: ktrueman http://blogs.reuters.com/felix-salmon/2010/12/22/what-are-the-chances-of-muni-doomsday/comment-page-1/#comment-22279 Mon, 27 Dec 2010 20:22:10 +0000 http://blogs.reuters.com/felix-salmon/?p=6691#comment-22279 My question is what happens to the whole notion of “states’ rights”, which so passions the Tea Party and any Republicans, if the Federal Government is called into bail them out.

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By: TFF http://blogs.reuters.com/felix-salmon/2010/12/22/what-are-the-chances-of-muni-doomsday/comment-page-1/#comment-22241 Fri, 24 Dec 2010 13:54:25 +0000 http://blogs.reuters.com/felix-salmon/?p=6691#comment-22241 Back in middle school, one of my teachers once lectured (ranted?) on the evils of the “system”. She told us that she was going to open $50k of credit cards, max them all out in a spending orgy, then declare bankruptcy and thumb her nose at the creditors. I don’t know how practical that is, and even at the time I found the idea repulsive, but the lesson made an impression.

This seems to me to be the path that we (and Europe) are headed down. Spend, borrow, spend more, borrow more, max out your credit lines… Then throw up your hands and say, “I can never repay all this! You evil banks fraudulently ripped me off by extending me such generous credit!” Then smugly walk away, feeling like you’ve beaten the system.

There are two problems with this approach. First and foremost, it is immoral. If you borrow money, you should intend to repay it. Sometimes circumstances change, but a “change of heart” doesn’t qualify. Second, it becomes very difficult (and expensive) to borrow again once you have willfully defaulted. Once burned, twice shy?

The US can still at this time repay its debts *if* it takes them seriously. Would have been easier before we voted for the latest round of tax cuts, though, and I fear that we are nearing the point (if not past it already) where debt repayment becomes a political impossibility. Thus we are firmly set on the immoral and unethical path of planned default.

In that case, you execute the plan in two steps. First run up all the debt you can. Then aggressively balance your primary budget and declare that you will no longer recognize outstanding obligations.

Simple, no? I fear it may be the end to the dollar as a viable currency, though. Our trade partners accept dollars as payment, then invest the proceeds in Treasuries. If those Treasuries are worthless, they’ll likely insist on payment in a currency that they can spend/invest productively elsewhere. So while you are busy balancing the federal budget, remember to structure our domestic industry to be self-supporting without reliance on imports. Hmm… Might be trickier than my middle school teacher thought?

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By: DanHess http://blogs.reuters.com/felix-salmon/2010/12/22/what-are-the-chances-of-muni-doomsday/comment-page-1/#comment-22233 Fri, 24 Dec 2010 02:34:39 +0000 http://blogs.reuters.com/felix-salmon/?p=6691#comment-22233 I suspect we are about to see ‘Subprime Lending: Municipality Edition!’

One feature of the housing crisis was that loans were made that would not have been made in the past. Similarly, I expect that bonds have been floated by towns and counties that never would have floated bonds in the past.

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By: DanHess http://blogs.reuters.com/felix-salmon/2010/12/22/what-are-the-chances-of-muni-doomsday/comment-page-1/#comment-22232 Fri, 24 Dec 2010 02:10:41 +0000 http://blogs.reuters.com/felix-salmon/?p=6691#comment-22232 A great post.

I like your observation of correlations going to 1 in a crisis. What we are seeing in Europe is a totally unsustainable situation where yields have been massively reset upward, with the already-weak nations taking the hardest hit. There is no reason why this can’t also happen in with states, cities and towns.

If states are held to the fire, it could get very bad in places.

By the way, I think Whitney could be right about ’50 to 100 sizeable defaults’ if we consider that there are thousands of counties and tens of thousands of towns and cities in the US. Take my state of Maryland for example. It will not default, but it has already axed much money that went consistently from the state to the local level every year. Now every locality is in the red. Good luck to every single one, especially the poor sections!

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By: dWj http://blogs.reuters.com/felix-salmon/2010/12/22/what-are-the-chances-of-muni-doomsday/comment-page-1/#comment-22227 Thu, 23 Dec 2010 19:07:49 +0000 http://blogs.reuters.com/felix-salmon/?p=6691#comment-22227 I believe the state of Arkansas defaulted in 1938, and that its debt fell to several cents on the dollar — but that it ended up paying everything it owed. In fact, I think no state in the US has ever failed to ultimately pay its debts.

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By: y2kurtus http://blogs.reuters.com/felix-salmon/2010/12/22/what-are-the-chances-of-muni-doomsday/comment-page-1/#comment-22197 Wed, 22 Dec 2010 21:45:05 +0000 http://blogs.reuters.com/felix-salmon/?p=6691#comment-22197 if you look at article 16 section 8 of the California Constitution I read that as meaning that education spending superceeds debt service. Still that’s only half of the state budget though so you could always slash the other half to make the payments.

Be wary of bonds that don’t have the full taxing authority of the municipality behind them.

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By: OnTheTimes http://blogs.reuters.com/felix-salmon/2010/12/22/what-are-the-chances-of-muni-doomsday/comment-page-1/#comment-22196 Wed, 22 Dec 2010 21:44:32 +0000 http://blogs.reuters.com/felix-salmon/?p=6691#comment-22196 I can see municipalities filing for bankruptcy, to force negotiations with bondholders and other creditors, but what is the mechanism for a state like CA to get out of its debt obligations? If it can’t file for bankruptcy, what legal tool can it use to stop making payments on bonds? Does it just say “we’re not paying off these loans any more, go ahead and sue us”?

And as far as CA GO bonds are concerned, I believe they are second in line to education. But ahead of last-year-work-80-hours-a-week paycheck based pensions for 50 year old police and firefighters.

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