Posted on 01/10/2011 5:05:59 AM PST by CutePuppy
Federal Reserve Chairman Ben Bernanke on Friday ruled out a central bank bailout of state and local governments strapped with big municipal debt burdens, saying the Fed had limited legal authority to help and little will to use that authority.
"We have no expectation or intention to get involved in state and local finance," Mr. Bernanke said in testimony before the Senate Budget Committee. The states, he said later, "should not expect loans from the Fed."
The $2.9 trillion municipal-bond market has been stung recently by worries that some cash-strapped cities or states won't be able to pay off or roll over debt. Costs have risen broadly for municipal borrowers. The market also faces challenges from the expiration of the Build America Bonds program, which helped cities and states borrow $165 billion at interest rates held down by federal subsidies.
Some analysts speculate the Fed could jump into the market by purchasing muni debt or lending to struggling borrowers.
The Fed only has legal authority to buy muni debt with maturities of six months or less that is directly backed by tax or other assured revenue, which makes up less than 2% of the overall market. The Dodd-Frank financial-regulation law enacted last year further tied the Fed's hands, Mr. Bernanke noted, by barring the central bank from lending to insolvent borrowers or pursuing bailouts of individual borrowers.
Mr. Bernanke played down the risk of a major municipal-bond crisis, noting that muni markets have been functioning normally, with healthy trading volumes and lots of issuance. But he said that if municipal defaults did become a problem, it would be in Congress's hands, not his.
"This is really a political, fiscal issue," he said.
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(Excerpt) Read more at online.wsj.com ...
Nice preemptive shot across the bow and explicit support of more conservative Republican agenda.
Federal Reserve Chairman Ben Bernanke on Friday ruled out a central bank bailout of state and local governments strapped with big municipal debt burdens, saying the Fed had limited legal authority to help and little will to use that authority.
The Fed is just there to bail out foreign corporations like AIG with taxpayer dollars.
He’s right about the need for all levels of government to get their own houses in order.
The only way the fiscal crisis in State and Local financial problems gets worse is if Bernanke hinted that Fed aid *would* be possible. In that case, the crisis would worsen to facilitate that aid. If Bernanke holds his ground (and that means no weasel words), then the “crisis” will lessen as states and munis find other solutions.
No the jerk is trying to avoid an audit.
Let the state workers’ unions and their political enablers find a way to fund their future! They made these unsustainable agreements knowing full well there were no funds to pay for them. So, let them continue to live in their make-beleive world and use their make-beleive money to pay their retirees’ exploding pension and health care costs! NO BAILOUTS!
MSNBC is already having political commentators making the same argument for bailing out CA and other states as they did for GM, that failures in those states will hurt the entire country. So this will be interesting. They also love to throw evil ‘Wall Street’ in every argument, “It's all evil greedy Wall Street's fault not CAs.”
Unfortunately, the Fed is already involved with bailing out the states. The stimulus bill had lots of money for the states and it was/is being financed by the sale of Treasuries to the Fed..follow the money.
Bernanke works on BANK bailouts.
Treasury is handing state and local bailouts.
A movement by Kucinich to use unspect TARP funds of local bailouts. Like Cleveland.
I watched a hearing on the mortgage mess in the House. ALL bank and servicer executives were put under oath. ALL regulators (OCC, HUD, Treasury, FHFA, FDIC) were NOT put under oath. And they all lied. “We knew nothing about missing titles until just recently!”
BS. F&F and HUD were very aware, they just didn’t want to rock the boat.
Bernanke’s words mean that the bailout of states is getting ready to happen. Always act on the opposite of what he says.
He’s tied at the him with Congress. If they go into a Strip Club Support program, they’ll make him buy their Treasury notes and he’ll print away.
Watch the bond markets. When they run for the door, jump out the window, even if your five floors up.
Funny. True.
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