Posted on 11/07/2009 5:22:15 AM PST by reaganaut1
James Chanos, the famed short seller who was among the first to foresee the collapse of Enron, recently sounded the alarm on the municipal-bond market -- in the hallowed halls of the New York Historical Society, no less.
The "cracking of state and local municipalities is coming," he predicted at a recent meeting attended by Barron's staffer Susan Witty, adding that he wouldn't touch munis.
In a subsequent telephone interview with this columnist, Chanos said, "State and local municipal finance are a mess and going to get worse."
It's not just the recession, which has reduced tax receipts. Rather, he says the poor economy "is masking real problems in municipal cost structures." The big problem, he says, is "the platinum-plated health-care and retirement benefits" given to state and local workers. "It's all coming home to roost" as boomers start to retire.
California faces a $60 billion deficit, and the politicians there believe that in "a worst-case scenario, the federal government will bail them out," says Chanos. "If the feds do bail them out, as I believe they will," the state's bonds will likely lose their federal tax exemption, he adds.
He didn't mention New York, but he could have. Gov. David Paterson and the state legislature, controlled by the governor's own Democratic Party, are playing a game of chicken about where to find budget cuts to address a soaring deficit now estimated at $3.2 billion. Paterson has also warned that the state could run out of money to pay its bills before the end of the year.
Neighbor New Jersey faces an $8 billion structural deficit next year -- one reasons the normally blue state's voters elected Republican Chris Christie as governor last week. Ex-Governor James McGreevy had bonded for current-account expenses before he resigned,
(Excerpt) Read more at online.barrons.com ...
We know from the examples of GM and Chrysler that Democrats will sacrifice bondholders to bribe unions, their political base. The owners of municipal bonds tend to be well-off, since they benefit more from the tax exemption on bond interest, and they will be targeted by class warfare rhetoric.
Exactly.
And the muni bond market as we know it will be destroyed.
Chanos was Elliot Spitzer’s procurer for hookers. Wonderful guy.
This is one of the unspoken variables of the coming massive depression that we are facing.
Just as people mistakenly referred to WWI as “The Great War,” people mistakenly referred to the depression of the 1930’s as “The Great Depression.”
The coming depression will make the 1930’s look like stagflation.
“The big problem, he says, is “the platinum-plated health-care and retirement benefits” given to state and local workers.”
And knowing that they could not afford these benefits, they invested heavily in high-risk instruments. Those instruments are failing miserably.
It will be kind of fun to watch the communionists, who have had a large part in destroying the economy of this country, have to go back to work for whatever menial labor they can find. They’ve been so smug with their strikes and violence to demand more from the taxpayer. Poetic justice.
Another lobbyist working for the California Socialists!
I guess this guy is saying that bailing out the idiots in California is of supreme importance to the rest of America. Guess what, states are rated individually. If California crashes and burns, the more fiscally responsible red states will not be affected.
I say screw em. Let California crash and burn.
A good place to monitor developments in the state/local/municipal employee pension/retirement benefits meltdown is:
http://www.pensiontsunami.com/
California has been advertising on radio to persuade people to consider buying their bonds. They advertise on conservative radio shows!
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