Localities Want U.S. To Support Muni Bonds

New York Times ^ | May 25, 2009 | Leslie Wayne

[reaganaut1]

State and local governments are asking Washington to give them something that banks are trying to get rid of: federal bailout money.

California is asking that money from the Treasury’s TARP, the Troubled Asset Relief Program, be used to help back more than $13 billion in short-term borrowings. Members of Congress and several municipalities want bailout money to be used to cover more than $1 billion in losses from investments by municipalities in debt issued by Lehman Brothers, the investment bank that went bust.

And Representative Barney Frank, chairman of the House Financial Services Committee, is drafting legislation that would have the Federal Reserve, and potentially the Treasury’s bailout money as well, stand behind floating-rate municipal bonds — a $400 billion market that provides short-term financing to municipalities, but which has been largely frozen in the current credit crisis.

Another measure drafted by Mr. Frank, Democrat of Massachusetts, would create a public finance office within the Treasury Department to reinsure $50 billion in municipal bonds. This proposal comes as downgrades of municipal bond insurance companies have made it more difficult and costly for state and local governments to issue bonds.

All of the proposals are meant to help struggling state and local governments that are facing a cash-flow squeeze. The economic downturn has eaten into their tax bases as local businesses shut, houses are lost to foreclosure and there is a resistance to raising taxes. The risk to the federal government is that it could lose money if things get worse for municipalities and states. Although backing debt with a guarantee does not require an immediate outlay of funds, the federal government could have to cover losses if there are defaults

[reaganaut1]

After Federal loans to state and local governments would come demands for loan "forgiveness", which will be conditioned on following the agenda of the Obama administration -- increasing taxes and not cutting spending.

America is in a downward spiral.

[Nervous Tick]

>> All of the proposals are meant to help struggling state and local governments that are facing a cash-flow squeeze.

Spend less... struggle less.

Fire two thirds of your lazy greedy overpaid municipal employees. That would do it right there.

[John123]

How does shifting the deficit from the local and state level to Federal is a “stimulus” plan?

[Sgt_Schultze]

Fire two thirds of your lazy greedy overpaid municipal employees. That would do it right there.

Not likely.

Schultz's axion #1: Government jobs exist to provide a middle class lifestyle to otherwise unemployable people.
Schultze's axiom #2: Government jobs exist to employ democrat voters.

[SunkenCiv]

"[singing] It's muni, muni, muni makes the world go 'round..."

[Nervous Tick]

>> Not likely.

No, but one can dream. And rant.

[Puddleglum]

look for a lot of Republicans to jump on this bandwagon. Just a prediction.

[RangerM]

Bonds aren’t safe investments anymore,or so I’ve heard.

[Ticonderoga34]

Barney Frank is heavily invested in Muni funds.

Yeah, they'll get fed bailout. Of course, the municipal governments will have to give up some of their autonomy to the Federal government but they will get their bailout.

[KarlInOhio]

Would federally guaranteed munis still be tax free forever, or will the IRS "discover" that a city/fed or state/fed bond is different from a strictly city or state bond, and is thus taxable?

[EGPWS]

State and local governments are asking Washington to give them something that banks are trying to get rid of: federal bailout money.

Imagine that.

All along I figured that smaller governments would be asking for federal assistance to find ways to cut costs to save their budgets.

They actually want to spend more.

Now THAT'S using the ol' collective noggin! /s

[familyop]

Most municipal appointees and politicians are liberal socialists, and they have large, expensive lobbies.

[steveab]

Even with the feds backing the bonds would be rated as junk.

[Crush T Velour]

Hmm...So some cities want the federal government to buy their debt. That sounds like GM.

Then the debt would be artificially easy to get until the cities couldn’t pay. Then the whole thing collapses. That sounds like who the mortgage debacle occurred.

I’m betting the federal government does it. One should always bet the historical pattern.

[blam]

"Fire two thirds of your lazy greedy overpaid municipal employees. That would do it right there."

You must be a 'mean-spirited' conservative.

[Nervous Tick]

>> You must be a ‘mean-spirited’ conservative.

Well, yeah, basically. But I prefer to think of myself as ruthlessly effective. :-)

[blam]

The Worst Case Scenario (Someone Has To Say It)

[kcvl]

Barney Frank has done such a superb job with everything else he has touched, I'm sure he will do so with this as well! /s

[org.whodat]

several municipalities want bailout money to be used to cover more than $1 billion in losses from investments by municipalities in debt issued by Lehman Brothers, the investment bank that went bust.

Here's a good ideal, get it from the people who ran Lehman Brothers into the ground and leave the tax payers out of it!!!!Like this one!!! Federal racketeering lawsuit against KB Home & Countrywide

[headstamp 2]

LOL!

Mo’ munie, Mo’ munie, Mo’ munie!!