Politics
Out of context: Reply #6790
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- tommyo0
Awesome... gov just can't keep their 'we'll fix it' hands off of anything these days. Here Barney Frank would like to create an FDIC like protection on state municipal bonds, so that their credit rating is falsely represented. Just how much risk should our gov be taking on? IMO they're playing it loose and fast JUST like the bankers have been doing. No caution be taken for future economic hiccups. Can we change the House of Representatives to the House of Cards?
'If Mr. Frank really believes that state and local governments have been forced to overpay for this insurance, one has to assume his federal program would charge lower premiums and so undercut its private-sector competitors. The government can charge low premiums without putting taxpayers on the hook, he argues, because the risk of default is so low.
Or is it? The payment history of municipal bonds seems to support Mr. Frank. But then the triple-A ratings assigned to many mortgage-backed securities were also based on backward-looking models that failed to anticipate today's housing bust. The muni-bond performance record is also mostly the history of uninsured bonds. But the very existence of insurance can change the behavior of the policyholder or beneficiary -- watch Barbara Stanwyck and Fred MacMurray in the 1944 classic "Double Indemnity." If a state or locality knows someone else will make bondholders whole, they are far more likely to default than an uninsured issuer would be.
Many states and localities have run up huge pension and health-care obligations to retirees that will come due over the next few decades. And many of those obligations were underfunded even before the bottom fell out of the stock market. When those bills hit, cities will have to choose among raising taxes, cutting benefits or stiffing bondholders. In some states, such as New York, retiree benefits are constitutionally protected, and taxes are already chokingly high. So stiffing the bond insurers will look pretty attractive.'