MuniLand

The ever-shrinking welfare rolls

Stateline has done some very good reporting on the decline of the welfare rolls. Welfare funding was switched to block grants in 1996, and the funding level has remained the same since then. From Stateline:

Welfare is not a big budget item for most states, taking up less than 2 percent of all state spending, according to the National Association of State Budget Officers (NASBO)…

…When Congress overhauled that system in 1996, it changed welfare from an “entitlement program” guaranteeing coverage to everyone who was eligible and instead created the Temporary Assistance for Needy Families (TANF) block grant that hands out lump-sum payments for welfare. States are essentially given a set amount of money and allowed to use it as they wish. The amount has stayed level since 1996.

The TANF system is believed by many to have saved governments a considerable amount of money. Nationwide, the average monthly number of welfare recipients fell from 12.8 million prior to the enactment of TANF to 4.4 million by September 2010, a decrease of more than two-thirds, according to NASBO.

A recent editorial by Peter Ferrara of the Carleson Center for Public Policy and Phil Kerpen of Americans for Prosperity claimed that in real dollars, total federal and state spending on welfare dropped 31 percent from 1995 to 2006. They called block-granting welfare “wildly successful” and argued that applying block grants to Medicaid “portends huge potential gains for taxpayers and the poor.”

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.

Over the last two years, credit rating agencies have standardized the municipal and corporate rating scales. This was a substantial change for the municipal bond market and had the effect of raising the credit rating of thousands of municipal issues. Many don’t understand why this large structural change was made, so I thought it would be helpful to share the history.

Many professionals within muniland have said that a substantial amount of “granularity” was lost in the municipal rating scale when it was equalized with the corporate bond scale. A municipal bond previously rated A2 was likely moved four notches up the rating scale to Aa1. This has the effect of “bunching” municipal ratings into a tighter band than they had previously been in, and it obscured the prior “granularity” that the muni scale had.

Some thorny action in California on the state budget:

California Governor Jerry Brown, who failed to win Republican support of tax extensions in six months of negotiations, said he’d “move heaven and earth” in another attempt after vetoing a budget without the provision.

Brown, a Democrat who pledged to solve California’s fiscal malfunctions without gimmicks, didn’t say how he’d get the Republican backing needed to pass his plan. His budget veto was the first in state history.

Rocking back and forth

Chip Barnett of Reuters brings us the weekly numbers on muniland flows:

U.S. municipal bond funds posted $172 million of net outflows in the week ended June 15, according to Lipper data issued on Thursday.

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.

Morally the actions of BONY, if true, are reprehensible. But are they illegal?  Felix describes the specific problem:

BNY Mellon’s clients put in FX orders, the bank executed those orders and reported back a price. Only it lied to its clients about the price it was getting, padding its own profits while so doing. This is doubly evil: not only did the bank lie, but it lied while serving as a fiduciary to its clients, with an affirmative duty to give them “best execution.”

Mark Gongloff of the Wall Street Journal‘s Marketbeat blog wrote this today about Meredith Whitney:

Professional scary person Meredith Whitney took to the op-ed pages of The Wall Street Journal this morning to sprinkle some more of her fear dust on the muni-bond market:

Municipal bond holders will experience their own form of contract renegotiation in the form of debt restructurings at the local level. These are just the facts.

UBS finally comes to the table

In November, 2009 the Wall Street Journal reported that Swiss bank UBS was in talks to settle with the SEC on their role into the three year investigation in municipal bid rigging.

After two years they’ve finally reached agreement to pay $160 million in restitution and fines.

From the SEC announcement:

“Our complaint against UBS reads like a ‘how-to’ primer for bid-rigging and securities fraud,” said Elaine C. Greenberg, Chief of the SEC’s Municipal Securities and Public Pensions Unit.

What is easier to regulate, financial markets or the nuclear industry?

If it is a matter of resources, financial markets must be very easy to regulate.

Congress sets the budget for the regulation of both industries and here are the numbers from 2009 (except nuclear industry revenue data from 2010).

I thought it would be interesting to compare industry revenues to the budget of the regulators.