The weakest states are stronger than U.S. banks

September 23, 2011

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.”

@Twitter Talk

CSG @CSGovts CSG  From 2009-2010, 37 states lost jobs and 13 states gained jobs. See full report and where your state ranks here:

Barrett and Greene@GreeneBarrett Barrett and Greene 15.7 million children in poverty in U.S. in 2010 — 2.6 million increase since recession began in 2007

St. Louis Fed@stlouisfed St. Louis Fed Video: How can microfinance work in America?
Secretary of State@secstatewa Secretary of State
WA Gov Gregoire calls emergency budget session of Legislature on Nov. 28 to deal with new $2b shortfall.
Andy Kroll@AndrewKroll Andy Kroll
RT @aseitzwald: Wisconsin’s largest public-sector unions effectively lose their official status this week.
Bob Brinker@BobBrinker Bob Brinker
$MUB muni bonds have entered the fifth derivative … also known as new all-time record highs.

+ Good Links +

New York Times: Data Show County’s Pain as Economy Plummeted

USA Today: State Lawmakers Pump Up Pensions

Governing: State Advocates To Obama: Hands Off Muni Bonds

Council of State Governments: The Bond Market and the Jobs Agenda

Gov Tech: Group Calls for Limits on Electronic Tracking by Law Enforcement

Blue Jersey: Collingswood Wins “Muniland Absurdity of the Year Award”

Washington’s Blog: CA’s Governor to Choose Wall Street or Main Street with Public Bank Bill

Gov Tech: Hawaii Seeks 1 Gbps Statewide Broadband Access by 2018

One comment

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“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.”

Isn’t that part of the “unless you do something, this will happen because you insisted on it” part of the (real) American Jobs Act? That’s not “open to negotiation,” that’s “this will get them to do something.”

Posted by klhoughton | Report as abusive