The weakest states are stronger than U.S. banks
The weakest states are stronger than US banks
I noticed something very interesting in some research that Markit, a data provider that tracks the credit-default swap market, released yesterday: the worst U.S. municipal credits (California, Illinois and New Jersey) are considered much stronger than all the major U.S. banks save JP Morgan. New York state is considered stronger than Mr. Dimon’s bank!
Why this is especially important in muniland is that these U.S. banks write a lot of credit-default swaps insuring the debt of these large states, which seems upside-down given that credit markets view the banks as weaker than the states they insure. This raises questions about the validity of the whole muni CDS market. I’ll dig around on this issue a little more.
Heavy political support for ending municipal-bond tax exemption
Bloomberg writes about several strong political forces in favor of ending the tax exclusion from municipal bond interest payments. I still haven’t seen a definitive cost analysis of the change though. Maybe the President’s proposal to reduce the tax exclusion on muni bonds for those earning over $200,000 is a signal to Republicans that the administration is willing to negotiate the issue. From Bloomberg:
The idea of phasing out the exemption has been raised in the past year as part of a broader discussion of ways to reduce the federal deficit. A proposal in the House of Representatives by Budget Committee Chairman Paul Ryan, a Wisconsin Republican, sought an end to the break.
A report from Obama’s 2010 fiscal commission led by Alan Simpson and Erskin Bowles, which the president embraced in December, also proposed ending the exemption, Bank of New York Mellon Corp. said in a report.
The break is the 11th biggest for taxpayers after such deductible expenses as employer-provided health coverage and home-mortgage interest, according to White House data.
Yet limiting the exemption for higher-income taxpayers may produce relatively little benefit, Harvey said in a statement released with the report. In 2008, for instance, “more than half of the 5.5 million tax returns reporting receipt of tax- exempt interest were filed by taxpayers with adjusted gross income below $100,000.”
+ Good Links +
New York Times: Data Show County’s Pain as Economy Plummeted
USA Today: State Lawmakers Pump Up Pensions
Council of State Governments: The Bond Market and the Jobs Agenda
Washington’s Blog: CA’s Governor to Choose Wall Street or Main Street with Public Bank Bill