Lisa Pollack of Markit in London sent over some interesting charts of U.S. municipal swaps. I put up this one which shows the market perception that risk is increasing again for some states, particularly Illinois and California. It is important to remember that these markets are thinly traded and that there is a large block of muni CDS written on California that is coming to market from the bankruptcy of Lehman Brothers.
New Jersey municipal employees to pay more for benefits
The Wall Street Journal is reporting that New Jersey Governor Chris Christie and the state Democratic leadership have reached agreement on reducing employee benefits:
The thing I hear most often about muniland is how murky the market is. It is rather astounding that the municipal market is so little understood given its size and its effects on state and local governments and tax rates. To help shake the market up and create more transparency, I thought it would be helpful to start gathering muniland data sets for people to start playing with. Have at it, friends. Please send over any interesting findings.
The Wall Street Journal and my fellow Reuters blogger Felix Salmon have both addressed the issue of the Bank of New York Mellon giving off-market or false prices on foreign-exchange trades to one of their clients, namely California pension fund Calpers.
Unfunded municipal pension liabilities are getting all the attention now, but it’s the burden of Medicaid and health-care expenses that are really crushing state and county budgets. In California, for example, the state will make a $2.4 billion pension contribution to Calpers and spend approximately $16 billion on Medicaid. The federal government kicks in an additional $25 billion.
Deficits at state-pension funds are the real monsters threatening municipal stability. Estimates of shortfalls at these funds range from $1 trillion from the Pew Center on the States to $3 trillion from Orin Kramer, the former chairman of New Jersey’s State Investment Council.
Happy Friday all!
Illinois passes landmark education reform
The Chicago Sun-Times reports that the Illinois state legislature has passed a substantial education reform bill. The legislation severely restrains the power of the teachers’ unions: