JP Morgan is making a big push into the muni market, by throwing its balance sheet around. It’s lending $1.5 billion to California, in return for getting the mandate to sell $10.5 billion of “revenue anticipation notes” next month; it also provided billions of dollars in support for Illinois, last November, and New Jersey, in June. “We are trying to build up our municipal franchise,” JPM’s Jeff Bosland told Michael Corkery. “With a state the size of California, we have the capability to help on a big scale. People tend to remember you when you were there for them in tough times.”

So, how is JP Morgan doing in those municipal-bond league tables? In the first half of this year, it’s in third place, having underwritten $22.6 billion in munis for an 11.6% market share. The leader, Citigroup, underwrote $31.6 billion in bonds, while Bank of America is in second place on $26.8 billion.

It’s worth comparing that position to the state of affairs in 2007, before JP Morgan bought Bear Stearns. For the full year, JP Morgan was in 5th place with $25.6 billion and a 6.0% market share, while Bear was in 8th place with $24.6 billion and a 5.8% market share. Add the two together (there might be a tiny bit of double-counting on issues they co-ran, but I doubt it would make much difference) and you get $50.2 billion, which would have been good for a comfortable second place, behind Citigroup. On the other hand, if you add together the 2007 deals of Bank of America and Merrill Lynch you get to a whopping $65 billion, good for first place, ahead of Citigroup.

One might think that with its two major competitors — Citigroup and BofA — both hobbled by government supervision, JP Morgan would be taking the opportunity to carve out a true leadership position in the municipal bond market. But in fact Citi seems to be doing very well indeed in that market, while BofA is very much holding its own. Maybe municipal finance is something federal regulators positively encourage, or maybe integrating the Bear Stearns team with the JP Morgan team was non-trivial. But in any case competition in this market doesn’t seem to have gone away, even with the consolidation of Merrill and Bear, and the fact that the #3 player in 2007 (UBS) has disappeared from the line-up entirely.

Walter Hussman, the publisher of the Arkansas Democrat-Gazette, adds an interesting datapoint to the question of self-cannibalization in the newspaper industry:

Hussman, an early pioneer in newspaper paid online content and frequent speaker on the topic, said his newspaper now has about 3,400 online subscribers who pay $5.95 per month for access to everything on the Web site. Non-subscribers still get a significant portion of online news - including some blogs, multimedia, AP and others - but not everything.

Hussman said the paid content online generates just one-tenth of 1 percent (0.1 percent) of the newspaper’s total revenue. But the newspaper has been very successful in keeping print circulation up in part because the newspaper is not giving all its content away for free. The Democrat-Gazette’s daily circulation is up 3,000 to more than 176,000 over the past 10 years, while other newspapers in the Southeast are down (some significantly). Sunday circulation for the Democrat-Gazette is down just 1 percent in 10 years.

A USC-Annenberg study this spring (the Annual Internet Survey by the Center for the Digital Future) reported 22 percent of survey respondents said they stopped their subscription to a printed newspaper or magazine because they could access the same content while online.

My general opinion on the subject of self-cannibalization is that you first need to get past the natural hubris of newspaper publishers. Yes, there is a degree to which print and online versions of a newspaper compete with each other. But there’s an even greater degree to which a print newspaper competes for its readers’ attention with the entire rest of the internet. If you put your website behind a subscription firewall, there’s no shortage of other content which your readers will happily consume for free.

That said, Hussman has a point: in terms of reader psychology, newspaper subscribers lose a free excuse for not renewing if you create an online firewall. If the paper is available online for free, they can say “I’ll just read it online” — even if they don’t. But if they have to pay for it online, they realize that in order to read the content they’re going to have to pay for it somehow, and if they’re paying a subscription fee anyway, they might as well get the paper delivered to their door, like they’re used to.

I’m interested in Hussman’s online subcription level, too, or $5.95 per month: it’s higher than I would have guessed. The obvious model to use is the magazine subscription model: sell subscriptions at $10 or $12 per year — the minimum possible level at which advertisers really value your readership, on the grounds that you make much more from advertising than you do from subscriptions. Advertisers will pay a premium to reach paying subscribers, but they don’t much care how much those subscribers are paying. So you make the subscription price as low as you can, in order to maximize the number of subscribers and therefore the amount of money you can get from advertisers.

What’s more, the effect of a subscription firewall on print circulation is effectively binary: it’s the existence of the firewall which matters, not the price level at which it’s set.

So what’s the reason for charging $71 a year rather than $10, if online subscriptions account for only 0.1% of your total revenue? I suspect that there’s an anchoring effect at work: a print subscription is $17 a month, or $204 a year, and the online subscription has been set at 35% of that figure.

In any case, if a newspaper is both increasingly reliant on paper subscription revenues and is seeing its paper subscriber numbers decline, there might indeed be a colorable case for implementing a subscription firewall in front of the online content. That doesn’t apply to big papers like the WSJ, FT, and NYT which are not seeing their print subscription numbers fall, and which aspire to being global news sources. But it does apply to smaller, regional papers, where the economics of newspaper publishing are particularly gruesome.

OK, this is getting REALLY annoying — it’s happened again! Why is Ecto killing my posts when I publish them? Here’s a shorter version of my now-lost IOU post:

Yglesias says California’s IOUs are “arguably” unconstitutional. Babcock demonstrates if they’re not unconstitutional already, they will be if California starts accepting them in payment of taxes. Are we moving towards an alternative currency like the patacón? Will California banks start opening IOU-denominated bank accounts? Will California effectively devalue against the dollar? And how can that possibly be good for the nation as a whole? Geithner should put a stop to all this nonsense once and for all, ban the IOUs, and just bail out California already. It’s inevitable he’ll do it sooner or later, so best do it before Americans’ faith in fiat currency is shaken up too much.

My fabulous new colleague Agnes Crane notes something interesting: even as he cools on the idea of selling municipal bond insurance, Warren Buffett has been loading up on municipal bonds. Why would Buffett want to take municipal credit risk in the bond market, but not want to take the same credit risk by selling insurance? I think there are at least five reasons:

1. Insurance, by its nature, is highly leveraged: the amount of capital that Buffett would have to set aside were he to insure $1 million of municipal bonds is tiny — and possibly even zero, at the margin. But leverage is not the kind of thing that Berkshire’s investors want to see right now. They’d prefer him to just spend $1 million of his cash on municipal bonds — at least that way you can’t lose more than you’ve spent.
2. Default risk goes up when the issuer is insured — it’s the moral-hazard problem. Buffett might well be interested in buying uninsured bonds because he knows that municipalities will be hesitant to default on their own citizens. But if a bond is insured, the municipality knows that its citizens will still get paid out by insurers, and that makes it easier to take the decision to default.
3. It’s easier to pick and choose credits if you’re buying in the secondary market than if you’ve set up shop as a bond insurer: a bond investor will shun most credits, but it looks pretty bad when an insurer says no to most credits.
4. An insured bond is a credit risk all the way to maturity, while Buffett can sell his munis as easily as he bought them. Maybe this is just a trading play, rather than a buy-and-hold investment.
5. Most importantly, if Buffett has been buying up munis cheap in the secondary market, he’s probably getting much higher yields than he could ever charge in the primary market as an insurer. He might be able to charge a percentage point or two to insure an issuer against default, but I’m sure he can find munis for sale at spreads much wider than that.

Given all these reasons to buy bonds rather than insure them, I do wonder what’s going to happen to the monoline market. Historically, it’s been a license to print money — but it might be a very long time before it re-emerges.

Becky Shay reports on an empty prison in Montana:

The $27 million facility, which was built with revenue bonds, went into default last year. Bond payments are being made out of a reserve fund, which will have to be replenished and payments made, once revenue starts.

Smith said the bond holders are sticking with the project because the long-term risk outweighs selling the facility for cents-on-the-dollar in foreclosure.

Smith and others continue to look for out-of-state contracts, including a multiyear deal with Alaska, which is looking for space as its contract to house prisoners in Arizona comes to an end.

As part of the search for contracts, TRA’s board and the Hardin City Council decided - both unanimously - to seek the Guantanamo detainees.

Clearly the US government shouldn’t even be thinking about sending the Gitmo prisoners back to Yemen. After all, there are foreclosures to avoid right here in Montana!