The Muni-Bond Debt Bomb (and how to dismantle it)

City Journal ^ | 07/25/10 | Steven Malanga

[TigerLikesRooster]

Steven Malanga

The Muni-Bond Debt Bomb

. . . and how to dismantle it

The minor-league baseball Grizzlies, lured to Fresno with a taxpayer-financed stadium, have threatened to leave.

In the early 1970s, New Jersey officials decided to build a sports facility in the Meadowlands, the state’s wetlands just outside New York City. To help pay for it, they formed the New Jersey Sports and Exposition Authority (NJSEA), a quasi-governmental agency with the power to issue debt. The authority floated $302 million in bonds, used the proceeds from the bond sale to construct Giants Stadium and a Meadowlands racetrack, and planned to pay off the debt in 25 years, largely with proceeds from the track but also with some help from the stadium. Horse racing proved a big hit, and the plan seemed bound for success.

[TigerLikesRooster]

P!

[dennisw]

great article...muni bond defaults are the future...read it all

[Psycho_Bunny]

This stadium crap was pulled not once, but twice in Seattle.

It's the rape and pillage of the taxpayer.

[TigerLikesRooster]

It seems that we are too late to prevent the current crisis. It appears that most of muni-bonds will default anyway. His recommendation would be for future risk not the current one, I am afraid.

[dennisw]

It seems that we are too late to prevent the current crisis. It appears that most of muni-bonds will default anyway. His recommendation would be for future risk not the current one, I am afraid.

Definitely too late. All this wise guy debt will have to inflated away or repudiated (defaults)

There is no escape. Few people know that America's debt markets are much much larger than the equity (stock ownership) markets. I'm positive this was not the case 30 years ago but I'll have to confirm this. Instinctively Americans are more interested in ownership (think Warren Buffet) than owning debt. Ownership is dynamic and masculine. Owning debt is passive and whimpy and known as coupon clipping (when it came to muni bonds of yore)

[tenthirteen]

my immigrant Irish grandmother (who came here legally) got it right. If you don’t have the price in your pocket for it, then you don’t need it. They absolutely never bought anything on time. Ever.

[Gene Eric]

>> All this wise guy debt

Good line.

[dennisw]

Thanks :)
Plus a lot of wise guy run labor unions got in on the construction action building all these sports facilities, bridges, highways, urban renewal schemes, that were all bonded out

Wall Street wise guys greatly facilitated this muni debt explosion and sent out salesman to bribe (cash direct or via campaign contributions) local Democrat hacks to issue more muni debt

[seowulf]

This stadium crap was pulled not once, but twice in Seattle.

As I recall after a vote of the people gave them a very loud, "NO!"

As we all know the Soviet of Washington has something in common with Stalinist Russia: it's all about who counts the votes.

[John Locke]

My grandmother was the same. “Pay cash, or go without”. Having been debt-free for over 10 years, I can testify that she was right.

[Son House]

At least read the last 1/3, this paragraph is telling;

“Another unaccountable independent agency is the Massachusetts Bay Transportation Authority (MBTA), which runs Boston-area mass transit. In 2000, ...the authority was supposed to reduce costs and gradually pay down some $5.6 billion in debt; instead, it continued to spend liberally, deferred the debt payments, and borrowed even more money—again, without voter approval. Today, the authority owes $8.5 billion and is paying a staggering $500 million yearly in debt service, which has forced it to neglect maintenance, shelve expansion plans, and cut service. It also needed a $160 million bailout from taxpayers to close a budget deficit last year.”

[Son House]

Build America Bond

“Instead, the federal government reopened the muni-bond business by stepping in with a new kind of municipal offering, the Build America Bond, which is taxable but can offer an attractively high interest rate because it’s partly subsidized by Washington. Municipalities enthusiastically embraced the new bonds, racking up another $58 billion in debt in 2009. It’s no surprise that the states in the worst fiscal shape, thanks partly to previous borrowing, made the biggest use of the bonds; California led the pack.

Build America Bonds have worsened what economists describe as a misallocation of resources that results from municipal debt’s favored status.”

[pointsal]

>> All this wise guy debt

Good line.

Right, that was catchy.