MuniLand

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.

While working this afternoon I noticed John McDermott, a Financial Times blogger, tweet the following:

@johnpmcdermott MF global write that Moody’s underestimates vulnerability of school districts to a US downgrade — http://cot.ag/odqdwL

Since when was MF Global writing about muniland? MF Global is an institutional firm headed by Jon Corzine, the former Goldman Sachs chairman, U.S. Senator and New Jersey governor. When I went to their website they didn’t seem to be making markets in or providing research on municipal bonds.

For muniland, there are many knock-on effects of Moody’s placing the credit rating of the United States on review. The federal government distributes tax dollars to states, who in turn deliver them to county and local governments. But this report focuses on a third-order risk of a U.S. downgrade. The tone was overheated and a tad shrill, and the premise seemed deeply overstated:

Our nation is in a serious economic crisis. Both political parties dance around each other with varying demands for cuts in entitlement programs, tax increases and a rise in the debt ceiling. It’s a doomsday prospect and the American people are feeling the chill of economic malaise.

The policy response thus far has mainly been to engage in deficit-spending, to give tax breaks, to broaden the social safety net and to print money. It sounds potentially inflationary to me.

It’s time for the political class to stop acting so small and embrace a way to rebuild our nation. It’s time to face the fact that we have a twentieth-century infrastructure at the beginning of the twenty-first century. But building new high-speed transit, offshore wind power, solar power arrays and new energy transmission grids is hugely expensive. Who will pay the cost?

Centers of power, by their nature, seek to control and hide information, but civil societies and stable governments require transparency to create the bedrock of confidence among their citizens. Every government must commit itself to open dealings and renew that commitment on an ongoing basis. We have good news from the state of Vermont that this commitment has spread to the state and local level.

Transparency at the federal level got a big boost when President Lyndon Johnson signed the Freedom of Information Act in 1966. Wikipedia says the Act “allows for the full or partial disclosure of previously unreleased information and documents controlled by the United States Government” and that it also “defines agency records subject to disclosure, outlines mandatory disclosure procedures and grants nine exemptions to the statute.”

Some have argued that Congress has carved out too many exemptions to the law, but there are many instances where the FOIA has been an effective tool for opening up the records of important government actions.  Without FOIA requests from deceased Bloomberg reporter Mark Pittman, for instance, the public would have never learned the details of the Federal Reserve’s facilities that funneled $3.3 trillion to financial institutions during the financial crisis.