Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Stock Market Dow Elliott Wave Analysis Forecast - Video - 16th Oct 19
$100 Silver Has Come And Gone - 16th Oct 19
Stock Market Roll Over Risk to New highs in S&P 500 - 16th Oct 19
10 Best Trading Schools and Courses for Students - 16th Oct 19
Dow Stock Market Short-term Trend Analysis - 15th Oct 19
The Many Aligning Signals in Gold - 15th Oct 19
Market Action Suggests Downside in Precious Metals - 15th Oct 19
US Major Stock Market Indexes Retest Critical Price Channel Resistance - 15th Oct 19
“Baghad Jerome” Powell Denies the Fed Is Using Financial Crisis Tools - 15th Oct 19
British Pound GBP Trend Analysis - 14th Oct 19
A Guide to Financing Your Next Car - 14th Oct 19
America's Ruling Class - Underestimating Them & Overestimating Us - 14th Oct 19
Stock Market Range Bound - 14th Oct 19
Gold, Silver Bonds - Inflation in the Offing? - 14th Oct 19
East-West Trade War: Never Take a Knife to a Gunfight - 14th Oct 19
Consider Precious Metals for Insurance First, Profit Second... - 14th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - 13th Oct 19
The Most Successful IPOs Have This One Thing in Common - 13th Oct 19
Precious Metals & Stock Market VIX Are Set To Launch Dramatically Higher - 13th Oct 19
Discovery Sport EGR Valve Gasket Problems - Land Rover Dealer Fix - 13th Oct 19
Stock Market US Presidential Cycle - Video - 12th Oct 19
Social Security Is Screwing Millennials - 12th Oct 19
Gold Gifts Traders With Another Rotation Below $1500 - 12th Oct 19
US Dollar Index Trend Analysis - 11th Oct 19
China Golden Week Sales Exceed Expectations - 11th Oct 19
Stock Market Short-term Consolidation Does Not change Secular Bullish Trend - 11th Oct 19
The Allure of Upswings in Silver Mining Stocks - 11th Oct 19
US Housing Market 2018-2019 and 2006-2007: Similarities & Differences - 11th Oct 19
Now Is the Time to Load Up on 5G Stocks - 11th Oct 19
Why the Law Can’t Protect Your Money - 11th Oct 19
Will Miami be the First U.S. Real Estate Bubble to Burst? - 11th Oct 19
How Online Casinos Maximise Profits - 11th Oct 19
3 Tips for Picking Junior Gold Stocks - 10th Oct 19
How Does Inflation Affect Exchange Rates? - 10th Oct 19
This Is the Best Time to Load Up on These 3 Value Stocks - 10th Oct 19
What Makes this Gold Market Rally Different From All Others - 10th Oct 19
Stock Market US Presidential Cycle - 9th Oct 19
The IPO Market Is Nowhere Near a Bubble - 9th Oct 19
US Stock Markets Trade Sideways – Waiting on News/Guidance  - 9th Oct 19
Amazon Selling Fake Hard Drives - 4tb WD Blue - How to Check Your Drive is Genuine  - 9th Oct 19
Whatever Happened to Philippines Debt Slavery?  - 9th Oct 19
Gold in the Negative Real Interest Rates Environment - 9th Oct 19
The Later United States Empire - 9th Oct 19
Gold It’s All About Real Interest Rates Not the US Dollar - 8th Oct 19
A Trump Impeachment Would Cause The Stock Market To Rally - 8th Oct 19
The Benefits of Applying for Online Loans - 8th Oct 19
Is There Life Left In Cannabis - 8th Oct 19
Yield Curve Inversion Current State - 7th Oct 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast Oct - Dec 2019 by Nadeem Walayat

The State of the States: Post-Bernanke Bellum

Politics / US Politics Feb 02, 2014 - 05:16 AM GMT

By: Fred_Sheehan

Politics

One can almost imagine ex-chairman Bernanke shaking his head in disbelief. (For the record, I cannot conceive of Simple Ben possessing the capacity for what follows, so this is an indulgence in creative writing.):


"I gave them every opportunity to get out of the mess they had created. Here we were, after the bust in 2009, a generation of irresponsible and sometimes criminal municipal management was obvious. States and cities had spent money like a ship full of drunken sailors, who then sold the ship to keep drinking. They built the most unnecessary monuments to satisfy contractor payoffs, union shakedowns, and school-board extravagances." [Bloomberg, January 24, 2014 - "Engineers spotted 'hundreds' of cracks in welds on parts produced for the San Francisco-Oakland Bay Bridge in 2008 and were encouraged to stay quiet rather than delay the $6.4 billion project.... 'This is the first time in my career the engineering wasn't allowed to be done right,' said Douglas Coe, a former Civil Engineer for the California Department of Education."]

"The phony housing boom had mushroomed property tax receipts, but even these temporary handouts had not been enough to balance their budgets. I have done my best to keep property-tax receipts at such an inflated level ["Home prices in 20 cities climb by most in seven years" - Bloomberg, December 31, 2013], but only a fool could think the central bank can keep prices for 100 million houses rising forever. The huge increase of income tax, sales tax, and capital-gains receipts had also increased beyond belief. This once-in-a-century transfer could not sate these spendthrift governments.

"We at the Fed ignored the preposterous 8% earnings rate assumption made for public-pension assets. This assumption extends into the hereafter. All I could give them was through 2013. I produced 8% rates-of-return across markets for four years! This was their chance to get their affairs in order; to whittle down the rate-of-return for the future when markets are bound to regress. [As I said, this goes well beyond Ben's potential imagination. - FJS] To stop spending as if the Fed could QE their pleasure palaces without losing the world's trust in the dollar. To stop building professional football fields when consumers could not possibly continue their animalistic buying, with incomes falling.

"We worked every contrivance to keep them doing so. Such as: Financial Times - January 24, 2014: 'In Vegas, a panel on securitizations of subprime auto loans - made to riskier borrowers who want to buy cars - was standing room only. Investor demand for the higher-yielding securities has led to intense competition to originate and bundle the auto loans.... 'At some point there will be a failure [of a subprime auto lender]. There will be some consolidation,' said Chris D'Onofrio, of rating agency DBRS." [Not mentioned in the story, but you may have gathered from the "intense competition," most subprime auto loans now being made are to buyers (sort of) whose credit is so poor, they do not even have credit scores. - FJS]

"I offered an opportunity to municipal bond markets: for ratings firms and bond managers to read the fine print. To understand municipalities had started (by 2009) to borrow for operating expenses, even the operating expenses they were forecasting, two or three years in the future. All of this is illegal and remains unspoken.

"We at the Fed thought [sic - FJS] municipal bond managers would pick and choose through the wheat and chaff. Yet, today, almost every municipal bond fund has at least one percent of its assets in Puerto Rican bonds. I knew the average mind at the FOMC was senile, but what gives with these managers? Their funds are often leveraged. And the rubbish being sold is as revolting as the justification for these issues. For example, from Bloomberg, December 17, 2013: 'Phillips Academy, the oldest incorporated boarding school and one of the most exclusive, is tapping the municipal bond market for over $80 million this week in new money and refunding debt....The school has an endowment of $869 million. The fall, 2013 enrollment was 1,129. Only 13% of the applicants were admitted.... 'These schools need to compete for students and invest in their facilities,' said [Susan] Fitzgerald, [senior vice president at Moody's].'

"She's a senior vice president? I can get away with not knowing what I am talking about before a bunch of senators, but she has a real job. Or, maybe not."

"And now, reading the Wall Street Journal from January 31, 2014: "DETROIT - This bankrupt city is proposing to favor pension funds at roughly double the rate of bondholders to resolve an estimated $18 billion in long-term obligations..."

"Et cetera, et cetera."

For those not up on Bernanke's limited verbal energy, see "The Professor Who Did Not Save the World."

Note: The question of pensions vs. bondholders will probably wind its way to the Supreme Court, even though there are many jurisdictions. In the meantime, there will be plenty of reasons for municipal bondholders to run, the Puerto Rican holdings being immediately pertinent.

By Frederick Sheehan

See his blog at www.aucontrarian.com

Frederick Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession (McGraw-Hill, November 2009).

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Frederick Sheehan Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules