The smallest city in the smallest state

By Cate Long
August 1, 2011

Central Falls, Rhode Island — the smallest city in the smallest state — filed for bankruptcy today after years of decline. It is the fifth U.S. municipality this year to seek protection from the courts under the bankruptcy law. The Governor of Rhode Island stood with city officials as the bankruptcy process commenced. Reuters quoted him as saying in a statement:

Continuing wills for the United States?

By Cate Long
July 28, 2011

The theatrics in Congress concerning the debt ceiling, now in their seventh month, have sent increasingly strong shock waves throughout the U.S. and global financial systems. The debt ceiling is the legislatively-imposed limit for the nation to issue debt to fund its activities. It’s been stalled at the same level of $14.3 trillion since May 16. The U.S. Treasury has been scrambling to find extra monies, including borrowing internally from the federal government workers’ pension plans, so that they can continue to pay the nation’s obligations. They say the cash drawer is near empty.

What would a debt-limit crisis cost the states?

By Cate Long
July 27, 2011

Thanks to Jordan Eizenga at the Center for American Progress, you can see some scenarios of the impact of the halt in payments to states if the debt ceiling is not raised. Jordan says:

Markets hold the whip, but are they rational?

By Cate Long
July 27, 2011

There has been a lot of discussion over the past few days about whether the United States deserves a triple-A rating. The weak and meandering attempts of the Congressional leadership and President Obama to reach a consensus on raising the debt ceiling has prompted this storm of confusion. The political theater is painful.

The growing gap

By Cate Long
July 26, 2011

The debate between President Obama and Republicans in Congress is getting more and more confusing. The graph above might help a little in understanding what the basis for the argument is. There is a large and growing gap between revenues and outlays. The deficit, or the difference between what comes in and what is paid out, is funded by selling U.S. Treasury bonds. We have reached the upper bound of what we can issue unless the Congress increases the debt limit. This has repercussions everywhere, including states.  Reuters has an excellent overview of the effect on the states since they rely on the federal government for a significant portion of their funding.

Most expensive sewage system in history

By Cate Long
July 21, 2011

If you say “Jefferson County” to a professional in muniland, you will likely get a shudder of mild revulsion. This Alabama county is the biggest example of Wall Street aggression towards a public entity since Orange County, California declared bankruptcy in 1994 after buying too many interest-rate derivatives. Dodd-Frank, the financial-reform law that’s been in effect for a year, changed the rules for municipal bonds and derivatives.  But did it change them enough to avert a repeat scenario?

Meredith’s clone?

By Cate Long
July 18, 2011

Meredith Whitney has made a reputation for herself in muniland as an analyst that came from the equity markets to predict an impending municipal bond cataclysm. Municipal bond experts were flabbergasted at the enormity of Whitney’s call, as well as the lack of data she had to back it up. Her bark ended up being many times worse than her bite, and now my antennae are on high alert for analysts who come out of nowhere and make big, unfounded calls.

Muniland is tightening up the ship

By Cate Long
July 6, 2011

Muniland has always been a sleepy corner of the financial markets. This all changed last winter when, from out of the blue, dire predictions of the market’s imminent collapse were made on national television. Since then, there has been a lot of uncertainty about the stability of state and local governments’ revenues and their ability to support their debt loads. States took steps to tighten up the ship and get ahead of the problems. Now the data is starting to come in, and although muniland has many problems to address, matters look much better than were predicted.

Quis custodiet ipsos custodes?

By Cate Long
July 5, 2011

Quis custodiet ipsos custodes? Or “who watches the watchmen?” Credit-rating agencies are the main watchmen of the financial system.  But can we judge their performance, or are they just black holes filled with “opinions?”

Standardizing AAA

By Cate Long
June 22, 2011

For many years, a AA-rated municipal bond did not have the same risk of default as a AA-rated corporate bond. In fact, the corporate bond was about 6 times more likely to default.